MINDTAP Assignment 09 -Stocks and Their Valuation Due Today at 11 PM CDT Attempt
ID: 2779911 • Letter: M
Question
MINDTAP Assignment 09 -Stocks and Their Valuation Due Today at 11 PM CDT Attempts: Keep the Highest: b 1. Rights and privileges of common stockholders Aa Aa Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of its directors, who are responsible for managing the company and achieving the company's objectives. True or False: The preemptive right allows Larry to purchase any additional shares sold by the company. This right will protec Larry from dilution in the value of the stocks he holds. True O False Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. The company's stock currently is valued at $42.00 per share. The company needs to raise new capital to invest in production. The company is looking to issue 5,000 new shares at a price of $33.60 per share. Larry worries about the value of his investment Larry's current investment in the company is additional purchase, Larry's investment will be worth . If the company issues new shares and Larry makes no This scenario is an example of Larry could be protected if the firm's corporate charter includes a provision. If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become DeExplanation / Answer
Pre- emptive right is a right extended by the company to its shareholders to purchase additional shares before the share goes public. This offers the shareholders to option of deciding whether to dilute their shares or not because after public offering their stake will be diluted. So the statement is true.
Larry s investment is 2000 shares out of 20,000 outstanding shares ,so his stake is 10%
If the company issues new shares ie 5000 new shares, total of 25,000 shares will be outstanding so Larrys stake = 2000/25000 = 8% , so his stake is diluted
The above scenario is an example of dilution. Larry can protect his if the corporate charter includes anti dilution or full ratchet clause
If Larry exercises the anti diltution clause, he will still hold 10% stake in the company.
Investment Value in the company = 25,000*33.60 *0.10= $ 84,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.