management question 36 Click Submit to complete this assessment. You should know

Question

management question 36

Click Submit to complete this assessment. You should know now that the preemptive right is so important to a firm's shareholders, but why? A. It can be seen as a protection mechanism for current shareholders against a dilution of their ownership interests 0 B. It helps the firm to issue not only debt with a relatively low interest rates, but also raise capital 0 C. It results in lower interest payments for bondholders It results in higher dividends per share It allows managers to purchase additional shares of stock way below the current market price

Explanation / Answer

Answer A

The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. This right helps protect current stockholders against both dilution of control and dilution of value

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