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8 September, 06:41

Luther Industries currently has 5 million shares outstanding and its stock is currently trading at $40 per share. Assuming Luther issues a 5:2 stock split, then Luther's new share price is closest to:

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  1. 8 September, 10:31
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    The Luther's new share price is closest to $16

    Explanation:

    For computing the new share in case of the stock split, first we have to find out the value of total share which is shown below:

    Value of share = Outstanding number of shares * price per share

    = 5,000,000 * $40

    = 200,000,000

    Now we find out the outstanding shares after the stock split which equal to

    = Value of share * stock split ratio

    =5,000,000 * 5 : 2

    = 12,500,000

    Then, compute the new share price which is equal to

    = Value of shares : stock split outstanding shares

    = 200,000,000 : 12,500,000

    = $16

    Hence, Luther's new share price is closest to $16
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