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.

---

Definitions:

Special Litigation Committee

A committee often formed within a corporation's board of directors to decide on legal strategies or manage specific litigation matters, especially in derivative lawsuits.

Derivative Suit

A lawsuit brought by a shareholder on behalf of a corporation against a third party, often its officers or directors, for harm done to the corporation.

Interested Directors

Board members who have a personal, financial, or other direct interest in a matter being considered by the board.

Model Nonprofit Corporation Act

Legislation aimed at providing a blueprint for the governance, structure, and operation of nonprofit corporations, facilitating their management and regulatory compliance.