1) Dilution and preemptive rights Lucy holds 1,500 shares of common stock in a company that only has 25,000 shares outstanding. The company's stock currently is valued at $45.00 per share. The company needs to raise new capital to invest in production. The company is looking to issue 5,000 new shares at a price of $35.00 per share. Lucy worries about the value of her investment What is Lucy's current investment value? = price per share x number of shares What is Lucy's percentage ownership? If the company issues new shares and Lucy makes no additional purchases, what will the new investment value be? New Market Value (Existing Price x Existing Shares) + (New Price x New Shares) New Share Value New Market Value / Total Outstanding Shares $ per share Lucy's new investment value $ What is Lucy's new percentage ownership? How many shares would Lucy need to purchase to avoid dilution? If Lucy's currently owns 6%, then she would have to purchase 6% of the new issue, If Lucy exercise her preemptive right and purchases the additional shares, would will be her new investment value? New Investment Value (Existing Price x Existing Shares) + (New Price x New Shares)