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Rights and privileges of common stockholders Larry Nelson holds 1,000 shares of General Electric (GE) common...

Rights and privileges of common stockholders

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 together with preferred stockholders.

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 $50.00 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 $40.00 per share. Larry worries about the value of his investment.

Larry’s current investment in the company is ? . If the company issues new shares and Larry makes no 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 become   .

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Answer #1
Ans. 1. True : Larry will receive dividend together with preferred stockholders .
Reason : As the stockholder has right to receive dividend from company if company declare dividend during his holdding period.
Ans.2 Larry's Current Investment in the company is : $100,000
2000 sh* $ 50/sh
If the company issues a new shares and Larry makes no adiitional purchase ,Larry 's Investment will be worth :$ 96,000
2000 sh *$ 48/sh
We will calculated Weighted Average Price of Old and new shares
Shres Price Vlaue
20000 50 1000000
5000 40 200000
25000 1200000
Weighted Avg. Price Total Value of Old and New shares isuued/ Total No. of Shares outstanding
12,00,000/25,000
48
Ans. 3 The Senario is an example of Diluition of Shares. Larry could be proteched if the Firms corporate charter includes the provision of Anti-Dilution of shares.
Ans. 4 If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become : $ 100,000
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