Art purchased 2,500 shares of Delta stock.His purchase represents ten percent ownership in the firm.His shares have increased in value from the $12 a share he originally paid to today's market value of $23 share.Assume Delta goes bankrupt and owes $450,000 more in debts than the firm can pay after liquidating all of its assets.What is the maximum loss per share Art will incur on this investment?

Question

Quizplus · Accepted Answer

Since Art's ownership represents ten percent of the firm, he owns 2500/0.10 = 25,000 total shares outstanding. 
If Delta goes bankrupt and owes $450,000 more in debt than the firm can pay after liquidating all its assets, the maximum loss per share will be ($450,000/25,000 shares = $18) over and above the current price of $23 per share. Therefore, Art will incur a minimum loss of $12 per share. So, the correct answer is Choice B.

Art Purchased 2,500 Shares of Delta Stock