Chapter 8

Question 1

Why may a corporation issue different classes of shares with no voting rights?

Answer 1

To maintain control over the company while raising capital.

Question 2

What is preemptive stock?

Answer 2

It is the allowance of current shareholders to purchase new shares being issued prior to public offering.

Question 3

How do you value a stock with negative revenues?

Answer 3

This corporation will not pay dividends, therefore, we must use valuation with multiples and the Price-sales ratio.

Question 4

What are the cons of staggered (classified) board elections?

Answer 4

I.) Due to having less directors to vote in, minority holders have less say.
II.) It hinders the possibility of takeover.

Question 5

What is a proxy voter?

Answer 5

A proxy voter is someone with the granted authority to vote on behalf of another shareholder.

Question 6

What is the difference between cumulative and straight voting?

Answer 6

Cumulative voting is where your total number of votes is multiplied for each director up for vote and you use all votes for one director. Whereas, in straight voting you are able to distribute it amongst directors.

Question 7

What are some rights of shareholders?

Answer 7

1.) Ability to purchase preemptive stock.
2.) Voting rights in director elections.
3.) Voting in other important events
4.) Right to assets following debts paid.