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Explain the concept of par value for common stock. Does par value mean that is what...

Explain the concept of par value for common stock. Does par value mean that is what the firm sold the stock for? Is par value a national concept or a state by state concept to be dealt with by organizations? Explain.

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Expert Solution

Answer to Part (1):

Par Value of a Common Stock:

Par Value of a Common Stock, also known as the nominal or face value refers to the value of the common stock as stated in the company's corporate charter.This is usually very small in nature such as one cent per share.

Example:

The par-value for Amazon stock is $0.01

Answer to Part (2);

No, par value does not mean the value at which a common stock is sold by the firm :common stocks are sold by the firm at the market value (which is in general greater than the par value)

It is mandated by some states in USA that firms will not be able to sell at a value lower than the par value in case of Initial Public Offering.

Answer to Part (3):

In USA:Par Value varies from state to state.Some states mandate that firms cannot sell at a value below the par value in Initial public Offering.To comply with this:firms set a minimum

While other states allow firms to issue shares without any par value..

jeff jeffy answered 2 months ago
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