Question

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 pre-emptive 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 pre-emptive right?A) 200,000 shares.
B) 120,000 shares.
C) 20,000 shares.
D) 12,000 shares.
E) 8,000 shares.

Answer 1

Answer:

Scubapro Corporation

The investor who currently has 20,000 shares has the right to buy this number of shares, if she exercises her preemptive right:

E) 8,000 shares.

Explanation:

Data and Calculations:

Outstanding common stock = 500,000

Planned issue of additional shares = 200,000

Proportion of new issue to outstanding = 0.40 (200,000/500,000)

For an investor with 20,000 shares, she has the right to buy 8,000 (20,000 * 0.40) additional shares.