Question

Scubapro Corporation currently has 500,000 shares of common stock outstanding and plans to issue 200,000 more shares in a seasoned equity offering. The current shareholders have preemptive rights on any new issues of common stock by Scubapro Corporation. How many shares would an investor who currently has 20,000 shares, have the right to buy if she exercises her preemptive right?

Answer 1

To change the company's top management, at least 5 investors are needed. If investors 1 and 2 vote together, they cannot be certain of always getting their way.

Step-by-step explanation:

The Darkroom Windowshade Company has 100,000 shares of stock outstanding. In order to vote to change the company's top management, the investors who collectively own more than 50% of the shares would need to vote in favor of the change. To determine the minimum number of investors required, we need to find the total number of shares that represent more than 50% ownership.

Investors 1 to 5 own a total of 20,000 + 18,000 + 15,000 + 10,000 + 7,000 = 70,000 shares. Since this total is already more than 50% of the total outstanding shares, the minimum number of investors needed to change the company's top management would be 5.

If investors 1 and 2 vote together, they would have a combined ownership of 20,000 + 18,000 = 38,000 shares. This is still less than 50% of the total outstanding shares, so they cannot be certain of always getting their way in how the company will be run.