The Preemptive Right Allows Shareholders

question 128

Multiple Choice

The preemptive right allows shareholders

• A)to overthrow existing corporate officers if they fail to earn profits.
• B)to maintain their proportionate ownership interest in the corporation.
• C)to convert their shares of stock into bonds,if dividends are not paid.
• D)to receive a dividend before interest is paid to bondholders.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life.

Bankruptcy

A legal process for individuals or businesses unable to meet their outstanding debts, allowing them to negotiate for partial or complete relief.

Financial Distress

A situation where a company struggles to meet or has difficulty in paying off its financial obligations to its creditors.

M&M I

The Modigliani-Miller Theorem I, which suggests that in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by its capital structure.