AMC Corp. plans to sell 20% more common stock through a right's offering in support of the shareholders' preemptive rights. How many shares must a current shareholder own to be granted one right and how many rights does it take to buy one added share?
A) 20 shares; 5 rights
B) 5 shares; 5 rights
C) 1 share; 20 rights
D) 5 shares; 20 rights

Question

Quizplus · Accepted Answer

To calculate the number of shares a current shareholder must own to be granted one right, divide the percentage increase (20%) into 100%, which gives 5. Therefore, a shareholder must own 5 shares to receive one right. Since the company is increasing shares by 20%, it takes 5 rights to buy one additional share.

AMC Corp Plans to Sell 20% More Common Stock Through a a Right's