Question

1. 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. O 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 $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. . If the company issues new shares and Larry makes no additional purchase, Larry's Larry's current investment in the company is 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

Answer 1

1) False , Larry have common stocks , so only after preferred shareholders are paid dividend , the common stockholders could be paid so they won't receive it together

2)$100,000 , as stock price is $50 and he has 2000 shares , so his investment is worth $100,000

3) $96000, the weighted average of the stock price is done as shown below
w1= 20000 , p1= $50 , w2=5000 , p2 = $40

Now Weighted Average Price = (w1p1 + w2p2)/(w1+w2)

= (20000*50 + 5000*40)/ 25000

=$48
He owned total 2000 shares , so his investment is worth $48* 2000= $96000

4) Dilution , the scenario is an example of dilution in which company issues more equity shares and dilute existing shareholders percentage .

5) preemptive rights, this are rights through which existing shareholders could maintain their percentage ownership of company by buying a proportionate number of shares in the future

6) $120,000, We had exercised this provision he would have 2500 shares(10% of total 25000) and share prices would $48 , so total would be 48*2500 = $120,000