Homework Answers
1. Larry must have signed a proxy that gives the management group control over his shares
2. Larry's current investment = No of shares * Value of share
= 2000 * 47 = 94000
3. If company issues additional shares Larry's investment will be worth as below:
Value of share after issue = (Total shares before issue * Value of share before) + (Additional shares issued * Value of issue) / Total no of shares
Value of share after issue = (20000*47) + (5000*37.60) / (20000 + 5000)
= ( 940000 + 188000 ) / 25000
= 1128000 / 25000 = 45.12
Larry's current investment = 2000 * 45.12 = 90240
4. This scenario is an example of dilution
5. Larry could be protected if firm's corporate charter includes a preemptive right
6. If Larry exercises the provision in corporate charter to protect his stake, his investment in firm will become 112800
It is explained as below:
Larry's % of holding before issue = 2000 / 20000 = 0.10 or 10%
Thus to maintain his share of 10% he will have to purchase 500 shares (5000 shares * 10%) from the additional issue.
Value of new issue = No of shares * Value of share
= 500 * 37.60 = 18800
Value of shares before issue = 94000 (calculated in part 2)
Value after issue = Value of shares before issue + Value of new issue
= 94000 + 18800 = 112800
Add Answer to:
Options for blanks 1. a) proxy b) preemptive right c)corporate charter d)poison pill 2. a)37600 b)56400...
please complete all parts to the problem. added extra pictures of answer choices to choose from...
please complete all parts to the problem. added extra pictures
of answer choices to choose from so its easier.
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please complete all parts to the problem. added extra pictures
of answer choices to choose from so its easier.
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