Which one of the following statements concerning dilution is correct?
A)Dilution of percentage ownership occurs whenever an investor participates in a rights offer.
B)Market value dilution increases as the net present value of a project increases.
C)Market value dilution occurs when the net present value of a project is negative.
D)Neither book value dilution nor market value dilution has any direct bearing on individual shareholders.
E)Book value dilution is the cause of market value dilution.

Question

Quizplus · Accepted Answer

Market value dilution occurs when a company undertakes a project with a negative net present value (NPV), which means the project is expected to decrease the company's overall value. This can lead to a decrease in the market value of the company's shares, affecting shareholders' wealth.

Which One of the Following Statements Concerning Dilution Is Correct