When a Firm Issues New Stock, It Always Results in a Dilution

question 15

True/False

When a firm issues new stock, it always results in a dilution of earnings in the long run.

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Definitions:

Conversion Value

The value of a convertible security if it were to be converted into other securities (usually common stock) at the current market price.

Common Stock

Equity without priority for dividends or in bankruptcy.

Call Option

A financial contract giving the buyer the right, but not the obligation, to buy an asset at a predetermined price within a specific time frame.

Exercise Price

The rate at which a call option allows buying or a put option allows selling of the underlying financial instrument or commodity.