You own 10 percent or 5,000 shares of Microprocessors, Inc. These shares have a total market value of $115,000. By what percentage will the total value of your investment in Microprocessors
Change if the company sells an additional 20,000 shares of stock at $18 a share and you do not buy
Any?

Question

Quizplus · Accepted Answer

The current total value of the shares is $115,000 (10% of the company's total value). If the company sells 20,000 shares at $18 per share, they will raise an additional $360,000 in capital. This will increase the total value of the company to $1,215,000 ($855,000 + $360,000). Since the market value of the 5,000 shares of stock you own remains the same at $115,000, your percentage of ownership in the company has decreased from 10% to approximately 8.88% (5,000/56,250). Therefore, the total value of your investment has decreased by approximately 6.21% [(10% - 8.88%) / 10% = 0.0621 or 6.21%].

You Own 10 Percent or 5,000 Shares of Microprocessors, Inc