Which of the statements below is FALSE? A preemptive right is never particularly valuable to shareholders...
Which of the statements below is FALSE?
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A preemptive right is never particularly valuable to shareholders with large ownership percentages. |
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If an investor purchases 20% of the initial issue of the company, the investor then owns 20% of the company, given the one vote-one share norm. |
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After an initial offering, the company can sell more shares to the public at a later date. If the investor who originally purchased 20% does not purchase 20% of the subsequent issue, his or her ownership is diluted below 20%. |
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A preemptive right enables one to maintain one's proportional level of ownership. |
Homework Answers
Answer: The first option is false.
Explanation:
Preemptive rights gives an investor the right to maintain the
ownership percentage in a firm by purchasing a proportional
quantity of stocks in any future issue of the stock. It may not be
particularly valuable to shareholders with small ownership
percentages, however it is important for the owners who will have a
large or controlling interest in a firm and and want to continue
maintaining the control in order to support their own
interests.
Add Answer to:
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