T-2. Mr. Jim owns 1,500 shares of stock in Company X. Company X’s 18,750 shares
ID: 2773227 • Letter: T
Question
T-2. Mr. Jim owns 1,500 shares of stock in Company X. Company X’s 18,750 shares outstanding are publicly traded and come with a pre-emptive right. They are currently trading at $27 per share. Company X is considering issuing 10,500 new shares to help finance the purchase of additional plant and equipment. If Mr. Jim wishes to maintain his proportionate ownership in the company, what is the additional dollar amount he will be required to make assuming he can purchase the new shares from the company at a 5% discount?
Explanation / Answer
Current % of Ownership of Mr Jim = 1500/18750
Current % of Ownership of Mr Jim = 8%
No of share to be bought by Jim to mainatine same % of Ownership = 10500*8% = 840
Current Share Price = $ 27
Jim would be able to purchase at = 27 -5%*27
Jim would be able to purchase at = $ 25.65
Additional dollar amount he will be required = 25.65*840
Additional dollar amount he will be required = $ 21546
Answer
Additional dollar amount he will be required = $ 21546
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