Scubapro Corporation currently has 500,000 shares outstanding and plans to issue 200,000 more shares in a seasoned equity offering. The current shareholders have preemptive rights on any new issue of stock by Scubapro Corporation. How many stocks would an investor with 20,000 shares, who exercises his preemptive rights on the new stock issue, have the right to buy?

Question

Quizplus · Accepted Answer

The investor owns 20,000 out of 500,000 shares, which is 4% of the company. With preemptive rights, they can maintain their 4% ownership by buying 4% of the new 200,000 shares, which is 8,000 shares.

Scubapro Corporation Currently Has 500,000 Shares Outstanding and Plans to Issue