Capital MarketsQuestion 314 of 398
In a follow-on offering by an already-public company, additional new shares are sold to the public. What effect does this typically have on existing shareholders?
a.It guarantees a higher dividend
b.It converts their common stock into preferred stock
c.It has no effect on their ownership percentage
d.It can dilute their proportional ownership in the company
Explanation
When a public company issues additional new shares in a follow-on (primary) offering, the total share count rises and existing shareholders' proportional ownership can be diluted. Dilution is a common concern investors weigh when a company raises additional equity capital.
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