Question
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) f(1) only (1) and (2) (1), (2) and (3)
Answer
3.7
(333 Votes)
Yvette
Professional · Tutor for 6 years
Answer
(1), (2) and (3)
Explanation
## Step 1:First, we analyze each of the statements:(1) "Rights issue aims to ensure that there is no 'dilution' of control": This is true. With a rights issue, existing shareholders get to retain their proportional ownership in the company when new shares are issued thus ensuring no dilution of their control over the company. ## Step 2:(2) "The new shares under rights issue are normally issued under the market price": This statement is also true. Most companies set the price lower than the current market price to encourage existing shareholders to take up the rights offering.## Step 3:(3) "There is a possibility that the existing shareholders do not exercise their rights to purchase new shares that have been issued": This is true too. While rights issues allow existing shareholders to buy new shares before others, some shareholders may choose not to exercise this right for various reasons (e.g., lack of funds, lack of interest).