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Dilution of Common Stockholder Equity

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A common stockholder owns 30% of a firm's 1 million outstanding shares. The firm plans to sell 200,000 new shares.
a) By how much is the stockholder's percentage ownership diluted if the firm sells all the shares to new investors.
b) How should the stockholder maintain the 30% ownership interest?

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Solution Summary

If firm plans to sell new common stock, it will affect the exisiting common stockholder and dilute their holdings. This solution provides calculations for dilution and the required level of new share subscriptions.

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A - New stock outstanding = 1,200,000 (1,000,000 + 200,000) and common stockholders holding = 30% of 1,000,000 = 300,000 shares

The new holding will ...

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