1. Rights and privileges of common stockholders Aa Aa Larry Nelson holds 1,000 s
ID: 2783104 • Letter: 1
Question
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: Larry will receive dividends after preferred stockholders. O False True 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 $48.00 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 $38.40 per share. Larry worries about the value of his investment. . If the company issues new shares and Larry makes no Larry's current investment in the company is additional purchase, Larry's investment will be worth 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 becomeExplanation / Answer
True or False: Larry will receive dividend after preferred stockholders.
Answer: True
Reason: Preferred share holder have preferential rights in receiving dividend hence common stock holder will receive dividend after preferred stock holder.
Larry’s Current investment in the company $ 96,000 (Explanation 1). If the company issue new shares and Larry makes no additional purchase, Larry’s investment will be worth $ 92,160 (Explanation 2)
This scenario is an example of Dilution (Explanation 3). Larry could be protected if the firm’s corporate charter includes a Presumptive (Explanation 4) provision.
If Larry exercises the provision in the corporate charter to protect his stake, his investment value in the firm will become $ 115,200 (Explanation 5).
Explanation
Old Share * Old Rate + new Share * New Rate
Total Number of Shares
20000*48+5000*38.40
25000
= 46.08
Share Value of Larry =Number of Share * New Share Price= 2000*46.08= 92160
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.