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FNCE 370 v10 ASSIGNMENT 5 ATHABASCA UNIVERSITY (100% GRADED)
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FNCE 370 v10 ASSIGNMENT 5 ATHABASCA UNIVERSITY (100% GRADED)
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lOMoAR cPSD|19857451 FNCE 370 v10 ASSIGNMENT 5 ATHABASCA UNI VERSITY (100% GRADED) FNCE 370v10: Assignment 5 Assignment 5 is worth 5% of your final mark. Complete and submit Assignment 5 after you complete Lesson 15. Note on Decimal Places When working through numerical problems, use as many decimal places as shown on your financial calculator. Do not round your calculated answers until you have reached the final answer. When you reach your final answer, round as follows, unless the question specifies otherwise. • Percentages: round to two decimal places • Dollars: round to two decimal places • Others: round to four decimal places 1. Discuss dilution of percentage ownership and dilution of market value in the context of rights offering. (4 marks) Dilution of Percentage Ownership: Dilution of ownership can occur when the firm raises equity by issuing additional shares to the general public in the absence of the existing shareholders exercising their right of offering. If they decide to sell their rights offering, they can be compensated for the loss of percentage of ownership, however if they ignore the offering, it can be a substantial loss due to the fact that the share price, at least in the short term, will be reduced in price due to the equity raise using shares. Dilution of Market Value: I have to admit, the text does a poor job of clearly describing this on pages 606 and 607, the notes do a better job. From what I can gather is dilution of market value can occur as a result of executing negative NPV projects. In this case, the book value goes up as assets are added to the Statement of Financial Position, however the equity raised to do so does not return value to the shareholders. In this case I believe the common term is called a “write down”. To link this back t o the rights issue portion of the question, if a shareholder exercises Questio n Marks Available Marks Awarded Referenc e 1 4 Lesson 13 2 5 Lesson 13 3 6 Lesson 13 4 7 Lesson 14 5 7 Lesson 14 6 12 Lesson 14 7 20 Lesson 14 8 21 Lesson 15 9 4 Lesson 15 10 14 Lesson 15 Total 100 lOMoAR cPSD|19857451 their right to purchase their shares, then the percent of ownership, I stays the same FNCE 370v10 1The benefits of buying summaries with Stuvia:
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