Question

a corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. if the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Answer 1

After a 5-for-1 stock split, the par value of each share in the corporation will decrease from $25 to $5 per share.

Step-by-step explanation:

To explain the impact of a 5-for-1 stock split on the par value of a corporation's stock, let's begin with the current situation: The corporation has 50,000 shares of $25 par stock, which means each existing share is valued at $25 in terms of its par value.

When a 5-for-1 stock split occurs, each share is divided into five shares, so the number of shares increases by a factor of five.

Since the overall equity value represented by the shares doesn't change, the par value of each share must decrease accordingly. In this case, the new par value after the stock split will be $25 divided by 5, which is $5 per share.