The Disadvantage of a Rights Offering Is

question 87

Multiple Choice

The disadvantage of a rights offering is:

• A) current shareholders are protected against dilution.
• B) the firm has a built-in market of knowledgeable investors.
• C) distribution costs are lower than a public offering.
• D) shareholders who do not exercise or sell rights will have their ownership diluted.

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Definitions:

Present Values

The today's worth of a future cash amount or cash flow series, determined by a given rate of return.

Discounting

The process of determining the present value of future cash flows by applying a discount rate, reflecting the time value of money.

Compounding

The process in which the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.

Effective Annual Rates

The interest rate on a loan or financial product restated from the nominal rate as an annual rate that accounts for compounding over a given period.