Which of the following statements is CORRECT? A)If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights. B)The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company. C)The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. D)The stock valuation model, P₀ = D₁/(r_s − g), cannot be used for firms that have negative growth rates. E)The stock valuation model, P₀ = D₁/(r_s − g), can be used only for firms whose growth rates exceed their required return.

Question

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The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. This allows existing shareholders to maintain their proportionate ownership of the company and prevent dilution. Option A is incorrect as different voting rights are allowed by different state charters. Option B is incorrect as the approval or disapproval of a merger is typically done through a vote by the board of directors or shareholders, not the preemptive right. Option D and E are incorrect as the stock valuation model can be used for firms with negative growth rates and growth rates below the required return, respectively.

Which of the Following Statements Is CORRECT