Market Organization and Structure: practice question
Corbric Foods has 1,500,000 common shares outstanding, of which the founder owns 900,000. To fund an expansion, the company issues 500,000 new ordinary shares to public investors in a seasoned equity offering, and the founder purchases none of the new shares. The founder's ownership percentage after the offering is closest to:
- 33.8%
- 45.0%
- 60.0%
Show answer and explanation
Correct answer: B
Working: Total shares after = 1,500,000 + 500,000 = 2,000,000. Founder's stake = 900,000/2,000,000 = 45.0%.
Explanation: The offering raises the share count to 2,000,000 while the founder still holds 900,000 shares, so 900,000/2,000,000 = 45.0%. The 60.0% figure divides by the old 1,500,000 share count and pretends the new shares do not exist. The 33.8% figure wrongly shrinks the founder's actual holding by the dilution factor (900,000 × 1.5/2.0 = 675,000, then 675,000/2,000,000): the issue dilutes his percentage of the company, not the number of shares he owns.
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