Question

Which of the statements below is FALSE?

A) A preemptive right is never particularly valuable to shareholders with large ownership percentages.
B) 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.
C) 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%.
D) A preemptive right enables one to maintain one's proportional level of ownership.

Answer 1

The answer is option A) The false statement among the options provided is:

A preemptive right is never particularly valuable to shareholders with large ownership percentages.

Step-by-step explanation:

A pre-emptive right enables investors to maintain a proportional level of ownership.

The goal of every investor is to make profit but this goal could be affected if the value of shares they hold is diluted. Hence the need for preemptive rights.

Preemptive right is a protective strategy by shareholders to maintain their share value with the option to buy a proportionate amount of shares if the company wishes to issue additional shares in the future.

Therefore, it is false to say that:

"A preemptive right is never particularly valuable to shareholders with large ownership percentages".