Question

Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of its directors, who are responsible for managing the company and achieving the company's objectives

True or False: Larry will receive dividends after preferred stockholders.

a. False
b.True

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. .

If the company issues new shares and Larry makes no ____ Larry's current investment in the company is additional purchase, Larry's investment will be worth

This scenario is an example of ____. Larry could be protected if the firm's corporate charter includes a provision

If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become _____.

Answer 1

b.True

Preferred Stock as their name suggest comes first in the dividend distribution.

If it makes no purchase of the new shares then, their investment will decrease to $76,800 as the market value no longer is $48 per share

This is an example of dilution that is, the decrease in both, business participation and also, value of the investment as new shares are issued the older investor will take a hit in their participation if they don't purchase additional shares in the new issuances

Step-by-step explanation:

2,000 shares x $38.40 = 76,800