Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stoc
ID: 2779947 • Letter: L
Question
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 ts 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 protect Larry from dilution in the value of the stocks he holds. True 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 If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become DOLL bblExplanation / Answer
Larry's current investment = 2000 * 42 = 84,000
If he makes no additional purchase, his investment will be = 2000 * 33.60 = 67,200
This is an example of Dilution
Larry could be protected if charter included preemptive right
If he exercises the right, his investment value will be $84,000 ( He gets 500 shares more, 500*33.60 = 16,800 and his investment will be 67,200 + 16,800 = 84,000 which he held earlier and is protected from dilution. He now holds 2500 shares as against 2000 shares earlier)
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