Question

Which of the following actions will provide the shareholders with the least total wealth when a company makes a rights offering

A. Do no sell or exercise the rights
B. Exercise the rights for new shares.
C. Exercise the rights and sell the shares.
D. Sell the rights themselves and hold existing shares and cash.

Answer 1

The action that will provide the shareholders with the least total wealth when a company makes a rights offering is to not sell or exercise the rights. The correct option is A.

Step-by-step explanation:

When a company makes a rights offering, the shareholders are given the opportunity to buy additional shares of stock at a specified price. In this scenario, the action that will provide the shareholders with the least total wealth is option A: do not sell or exercise the rights.

By choosing not to sell or exercise the rights, the shareholders will not incur any additional costs or take any actions that could potentially reduce their wealth. They will maintain their existing shares without spending any additional money.

Option B involves exercising the rights for new shares, which may involve additional expenses, and option C involves selling the shares received from exercising the rights, which may result in a loss if the share price is lower. Option D involves selling the rights themselves instead of exercising them, which may also lead to a loss if the market price of the rights is low.