1. Rights and privileges of common stockholders

Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of its directors, who are responsible for managing the company and achieving the companys objectives.

True or False: The preemptive right allows Larry to purchase any additional shares sold by the company. This right will protect Larry from dilution in the value of the stocks he holds.

False

True

Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. The companys stock currently is valued at $42.00 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 $33.60 per share. Larry worries about the value of his investment.

Larrys current investment in the company is _______ . If the company issues new shares and Larry makes no additional purchase, Larrys investment will be worth ______ .

This scenario is an example of ________ . Larry could be protected if the firms corporate charter includes a ________ provision.

If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become ____________ .