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 $48.00 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 $38.40 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 ofdilution . Larry could be protected if the firm’s corporate charter includes apreemptive right provision. If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become
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 $48.00 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 $38.40 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 ofdilution . Larry could be protected if the firm’s corporate charter includes apreemptive right provision. If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 $48.00 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 $38.40 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 ofdilution . Larry could be protected if the firm’s corporate charter includes apreemptive right 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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