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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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It is frequently stated that the one purpose of the preemptive right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation.

  1. a. How important do you suppose control is for the average stockholder of a firm whose shares are traded on the New York Stock Exchange?
  2. b. Is the control issue likely to be of more importance to stockholders of publicly owned or closely held (private) firms? Explain.

a.

Summary Introduction

To explain: The importance of controlling for the average stockholder of a firm that has its shares traded on the New York Stock Exchange.

Introduction:

Preemptive Right: The shareholders’ right to be offered the followed issuance of stock on a pro-rata basis before it is available for the general public is called preemptive right. Companies offer this right to its privileged shareholders.

Answer
  • The control over a firm is important, as it determines the current actions and future strategies of business.
  • Although, the average stockholders, usually invest for a monetary gain and not for control over a firm
  • Still, the control part is important because the monetary gain are based on the decisions taken by firm’s control authorities.
Explanation
  • The ownership of the firm is decided on the basis of shares held by different investors.
  • The ownership reflects its approach and decision making in the eventual actions and strategies of a firm’s management team.
  • The management of a firm works as per the mission and vision aligned with the owners.
Conclusion

So, the control of a firm is important to the average investor.

b.

Summary Introduction

To differentiate: The importance of controlling for stockholders of publicly owned and private firms.

Answer

The control is equally important for both types of firms that are public and private.

Explanation
  • The ownership reflects its approach and decision making in the eventual actions and strategies of a firm’s management team.
  • The investor of both the types of firm has the same motive that is to maximize the wealth.
Conclusion

So, the control of a firm is equally important for both types of firms.

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