Larry Nelson holds 1,000 shares of General Electric common stock. As a shareholder, he has the...

Larry Nelson holds 1,000 shares of General Electric common stock. As a shareholder, he has the right to be involved in the election of its directors. These directors are responsible for managing the company and achieving the company’s objectives.

True or False: Larry can invest in another company that is selling class A shares to the public, and class B shares will be retained by company insiders. This will help the founders maintain control in the company.

True

False

Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. Currently, the company’s stock is valued at $47.00 per share. The company needs to raise new capital to invest in its future production activities. The company is anticipating issuing 5,000 new shares at a price of $37.60 per share. Larry worries about the value of his investment.

Larry’s current investment in the company is worth $ __________________

. If the company issues its new shares and Larry makes no additional investments in the company, then his 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 $ _________________

Expert Solution

True .

Larry can invest in another company that is selling class A shares to the public, and class B shares will be retained by company insiders. This will help the founders maintain control in the company. A preemptive right is a provision that gives shareholders the right to buy new shares in any new share issuance in proportion to their existing stake in company.

Larry's current investment in the company is $ 82000 ( 2000 * $ 41). If the company issues new shares and Larry makes no additional purchase , Larry's investment will be worth $ 78720 [ ( 20000 * 41 + 5000 * 32.80 )/25000 = $ 39.36 * 2000 ]

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

If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become $ 98400 (2000 * 41 + 500 * 32.80 )

ekkarill92 answered 10 months ago

Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has...

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 can vote in person at the company’s annual meeting, through the mail, or by transferring the right to vote to another person by means of proxy. Larry also holds 2,000 shares of common stock in a company...

Larry holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding....

Larry 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. 1. Larry’s current investment in the company is ?. 2. If the company issues new shares and Larry makes...

The 200 shares of Long Corporation’s common stock are held as follows: Shareholder ...

The 200 shares of Long Corporation’s common stock are held as follows: Shareholder # of Shares Matt 50 Mark 60 Jason 90 Matt purchased shares for $200 each on September 30, 2016. Assume Matt, who is Mark’s father, sells 40 of his shares to the Corporation for $12,000. (1) Will the sale qualify as a substantially disproportionate (or disproportionate) redemption?...

Oxen Corp. has 1,000 shares of common stock outstanding. Cherith owns 400 of these shares and...

Oxen Corp. has 1,000 shares of common stock outstanding. Cherith owns 400 of these shares and Marshall owns 600. Marshall’s total basis in his 600 shares is $40,000. Oxen has $500,000 of accumulated E&P as of the beginning of the year, and Oxen is profitable this year. Assume that Oxen redeems 210 shares of Marshall’s stock during the year for $80,000. Marshall seeks to determine if the redemption qualifies for sale treatment as a disproportionate redemption under Section 302(b)(2). Would...

Western Electric has 33,000 shares of common stock outstanding at a price per share of $81...

Western Electric has 33,000 shares of common stock outstanding at a price per share of $81 and a rate of return of 12.90 percent. The firm has 7,400 shares of 8.00 percent preferred stock outstanding at a price of $96.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $410,000 and currently sells for 112 percent of face. The yield to maturity on the debt is 8.14 percent. What...

Western Electric has 31,000 shares of common stock outstanding at a price per share of $77...

Western Electric has 31,000 shares of common stock outstanding at a price per share of $77 and a rate of return of 13.10 percent. The firm has 7,200 shares of 7.60 percent preferred stock outstanding at a price of $94.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $398,000 and currently sells for 110 percent of face. The yield to maturity on the debt is 8.02 percent. What...

Western Electric has 28,000 shares of common stock outstanding at a price per share of $71...

Western Electric has 28,000 shares of common stock outstanding at a price per share of $71 and a rate of return of 13.40 percent. The firm has 6,900 shares of 7.00 percent preferred stock outstanding at a price of $91.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $380,000 and currently sells for 107 percent of face. The yield to maturity on the debt is 7.84 percent. What...

Western Electric has 25,500 shares of common stock outstanding at a price per share of $66...

Western Electric has 25,500 shares of common stock outstanding at a price per share of $66 and a rate of return of 13.65 percent. The firm has 6,650 shares of 6.50 percent preferred stock outstanding at a price of $88.50 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $365,000 and currently sells for 104.5 percent of face. The yield to maturity on the debt is 7.69 percent. What...

Western Electric has 24,000 shares of common stock outstanding at a price per share of $63...

Western Electric has 24,000 shares of common stock outstanding at a price per share of $63 and a rate of return of 13.80 percent. The firm has 6,500 shares of 6.20 percent preferred stock outstanding at a price of $87.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $356,000 and currently sells for 103 percent of face. The yield to maturity on the debt is 7.60 percent. What...

Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and...

Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Joe Jackson 400 Mike Jackson (Joe’s son) 200 Jane Jackson (Joe’s daughter) 200 Vinnie Price (unrelated) 200 Total 1,000 Thriller Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of this year of $500,000. During this year, the corporation made the following distributions to its shareholders: 03/31: Paid a dividend of...

Question