Deimos Corporation has 500,000 shares of $2 par-value common stock issued and outstanding when the market price per share is $22 per share. By what amount will total equity increase when the company declares a 2:1 stock split

Question

Kathleen Valenzuela

Business

26 February, 22:54

Deimos Corporation has 500,000 shares of $2 par-value common stock issued and outstanding when the market price per share is $22 per share. By what amount will total equity increase when the company declares a 2:1 stock split

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Answers (1)

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Kasen Huynh · Answer 1

Total equity will remain the same

Explanation:

A stock split is simply increasing the number of shares and at the same time reducing the par value per share.

A stock split of 2:1 means that the number of shares would double while par value reduces by half. Specifically, the number of shares would increase from 500,000 to 1,000,000 while the par value reduces from $2 per share 1/2*$2 i. e $1 each.

All in all, the there is no increase in total equity overall.