Larry Nelson holds 1,000 shares of General Electric commonstock. As a shareholder, he has the right to be involved in theelection of its directors. These directors are responsible formanaging the company and achieving the company’s objectives.
True or False: Larry can invest in another company that isselling class A shares to the public, and class B shares will beretained by company insiders. This will help the founders maintaincontrol in the company.
True
False
Larry also holds 2,000 shares of common stock in a company thatonly has 20,000 shares outstanding. Currently, the company’s stockis valued at $47.00 per share. The company needs to raise newcapital to invest in its future production activities. The companyis anticipating issuing 5,000 new shares at a price of $37.60 pershare. Larry worries about the value of his investment.
Larry’s current investment in the company is worth $__________________
. If the company issues its new shares and Larry makes noadditional investments in the company, then his investment will beworth $ _______________
.
This scenario is an example of _____________ . Larry could beprotected if the firm’s corporate charter includes a _____________provision.
If Larry exercises the provisions in the corporate charter toprotect his stake, his investment value in the firm will become $_________________
