SIE practice questionmediumCommon Stock — Preemptive Rights
A company with 1,000,000 shares outstanding plans to issue 200,000 new shares. An investor who owns 50,000 shares has preemptive rights. How many new shares is the investor entitled to purchase?
- A10,000✓ Correct answer
- B20,000
- C5,000
- D50,000
Explanation
Why A — 10,000
Preemptive rights allow existing shareholders to maintain their proportional ownership. The investor owns 50,000 / 1,000,000 = 5% of the company. 5% of 200,000 new shares = 10,000 shares. Preemptive rights protect against dilution of ownership percentage.
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