After a series of stock splits, what remains the market capitalization of Widget Co?

After a series of stock splits, what remains the market capitalization of Widget Co?

• A. $50 million
• B. $100 million
• C. $200 million
• D. $10 million

Answer: (B)

Market capitalization is calculated by multiplying the total number of outstanding shares by the current share price. When a company undergoes stock splits, the number of outstanding shares increases while the price per share adjusts downward accordingly, ensuring that the total market capitalization remains unchanged. In the case of Widget Co, after the series of stock splits, the fundamental value of the company as assessed by its total shares outstanding and share price remains consistent. This means that irrespective of how the shares are restructured in terms of quantity and price, the overall market capitalization continues to reflect the company's true market value; therefore, if the value was initially set at $100 million, it remains $100 million post-splits. It’s important to note that stock splits do not create any new value; they simply divide the going market value into more shares at a lower price. Thus, the accurate answer reflects that Widget Co maintains a market capitalization of $100 million following the splits.

Market capitalization is calculated by multiplying the total number of outstanding shares by the current share price. When a company undergoes stock splits, the number of outstanding shares increases while the price per share adjusts downward accordingly, ensuring that the total market capitalization remains unchanged.

In the case of Widget Co, after the series of stock splits, the fundamental value of the company as assessed by its total shares outstanding and share price remains consistent. This means that irrespective of how the shares are restructured in terms of quantity and price, the overall market capitalization continues to reflect the company's true market value; therefore, if the value was initially set at $100 million, it remains $100 million post-splits.

It’s important to note that stock splits do not create any new value; they simply divide the going market value into more shares at a lower price. Thus, the accurate answer reflects that Widget Co maintains a market capitalization of $100 million following the splits.