Which of the Following Statements Concerning Common Stock and the Investment

question 14

Multiple Choice

Which of the following statements concerning common stock and the investment banking process is false?

• A) The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.
• B) If a firm sells 1,000,000 new shares of Class B stock,the transaction occurs in the primary market.
• C) Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and status probably outweigh the additional costs to the firm.
• D) Stockholders have the right to elect the firm's directors,who in turn select the officers who manage the business.If stockholders are dissatisfied with management's performance,an outside group may ask the stockholders to vote for it in an effort to take control of the business.This action is called a margin call.
• E) A large issue of new stock could cause the stock price to fall.This loss is called "market pressure," and it is treated as a flotation cost because it is a cost associated with the new issue.

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Definitions:

Domestic Producers

Refers to individuals or companies that manufacture goods or offer services within their own country.

Opportunity Cost

When one choice is made, it results in missing out on the potential benefits of other alternatives.

Rubber Bands

Rubber bands are stretchable loops of rubber used to hold objects together; not typically significant in economic or business contexts unless considering their manufacturing or supply industries.

Paper Clips

Small pieces of bent wire or plastic used for holding sheets of paper together.