Diego owns 1,000 shares of Carmen. If Carmen Company issues an additional 100,000 shares of common stock, how many additional shares does Diego have the opportunity to buy

Number of additional shares Diego has the opportunity to buy is 500 shares.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Carmen Company has the following equity amounts and no dividends in arrears.

Preferred stock, $1,000 par             $24 million

Common stock, $100 par                 $20 million

Paid-in capital in excess of par        $36 million

Retained earnings                             $18 million

Diego owns 1,000 shares of Carmen. If Carmen Company issues an additional 100,000 shares of common stock, how many additional shares does Diego have the opportunity to buy?

a. 500   b. 1,000   c. 2,000   d. 3,000

The explanation of the answer is now given as follows:

Current number of Carmen's Common stock shares outstanding = Common stock value / Common stock par value = $20,000,000 / $100 = 200,000 shares

Current percentage of Diego ownership in Carmen = Current number of Diego;s shares / Current number of Carmen's Common stock shares outstanding = 1,000 / 200,000 = 0.005, or 0.50%

Number of additional shares Diego has the opportunity to buy = Number of additional shares Camen wants to issue * Current percentage of Diego ownership in Carmen = 100,000 * 0.50% = 500 shares

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