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

Question

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The investor currently owns 20,000 out of 500,000 shares, which is 4% of the company. To maintain her 4% ownership after the new shares are issued, she has the right to buy 4% of the 200,000 new shares, which is 8,000 shares.

Scubapro Corporation Currently Has 500,000 Shares of Common Stock Outstanding