Which one of the following statements concerning dilution is correct?
A) Dilution of percentage ownership occurs whenever an investor fully participates in a rights offer.
B) Market value dilution increases as the net present value of a project increases.
C) Market value dilution occurs when the net present value of a project is negative.
D) Neither book value dilution nor market value dilution has any direct bearing on individual shareholders.
E) Book value dilution is the cause of market value dilution.

Question

Quizplus · Accepted Answer

Market value dilution occurs when a company undertakes a project with a negative net present value (NPV), which means the project is expected to decrease the value of the company. This can lead to a decrease in the market value of the company's shares, affecting all shareholders.

Which One of the Following Statements Concerning Dilution Is Correct