What is the usual effect of a rights issue on existing shareholders who do not exercise or sell their rights?
Correct answer: A. Their voting and ownership percentage may be diluted
- A. Their voting and ownership percentage may be diluted
- B. Their dividend becomes legally guaranteed
- C. Their shares automatically become preference shares
- D. Their original share price is fixed permanently
Explanation
A rights issue offers new shares to existing shareholders, usually in proportion to their current holdings. A shareholder who does not take up or sell the rights may own a smaller percentage of the enlarged share capital.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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