Question
Question 17 Which of the following statement(s) is true? (Select the correct answer from the options below the statements) (1) Rights issue aims to ensure that there is no 'dilution' of control (2) The new shares under rights issue are normally issued under the market price (3) There is a possibility that the existing shareholders do not exercise their rights to purchase new shares that have been issued (1) and (3) (1) only (1) and (2) (1),(2) and (3) 4 pts
Answer
4.6
(215 Votes)
Jena
Elite · Tutor for 8 years
Answer
The correct option would be (1), (2) and (3).
Explanation
## Step 1: Let's validate each of statement separately.### 1st Statement: "Rights issue aims to ensure that there is no 'dilution' of control"A rights issue is a method for a company to raise additional capital. A rights issuer offers existing shareholders the opportunity to buy additional shares at a discounted rate. Shareholder's control in the company is not diluted because existing shareholders have the 'pre-emptive' right to purchase these new shares first, before the company opens the offer to the public. Consequently, this statement is **true**.### 2nd Statement: "The new shares under rights issue are normally issued under the market price"Indeed, the new shares offered via a rights issue are typically priced below the company's current traded market value to incentivize existing shareholders to purchase these new shares. Therefore, this statement is **true**.### 3rd Statement: "There is a possibility that the existing shareholders do not exercise their rights to purchase new shares that have been issued"This is also **true**. Not all shareholders may exercise their rights to purchase extra shares, especially if they do not have additional capital for investment or if they believe the company's future prospects are unclear.Therefore, all three statements are true: (1), (2), and (3).