Question

Discuss (=in one sentence) whether the following statements are true or false.

E) 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.

F) 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%.

G) A preemptive right enables one to maintain one's proportional level of ownership.

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

Answer 1

E) True- As given the one vote-one share norm, an investor owns in same proportion in which he invest.

F) True- To maintain the same proportion of ownership, an investor needs to purchase the shares in subsequent issue also in same proportion already held. Otherwise his ownership will get diluted.

G) True- As preemptive right gives a privilege that allows current shareholders to buy a fixed percentage of all futures issues before they are offered to the public.

H) False- Preemptive right may not be particularly valuable to shareholders with very small ownership percentages, but it may be critical to owners with a large or controlling interest in the company who want to maintain control to support their own interests.