Which of the following, if true, LEAST supports the decision to sell B

QUESTION

Which of the following, if true, LEAST supports the decision to sell BoxCorps and purchase Excelsior as a prudent financial move?

A) BoxCorps recently split its shares by two-for-one, so the club now owns twice as many shares of its stock as before.
B) The club owns preferred stock of BoxCorps, while the shares it would buy of Excelsior are common stock.
C) BoxCorps trades on the New York Stock Exchange, while Excelsior trades on the over-the-counter market.
D) Excelsior’s chemotherapy drugs target lethal forms of cancer for which no treatment exists at present.
E) Marianne, the person who initially suggested buying BoxCorps, is the club’s founder and oldest member.

ANSWER

Answer: B
Explanation: B) If the club owns preferred stock, then it is given first claim on dividends and on remaining assets if the firm goes bankrupt, whereas if it owns common stock, it gets last claim on both. So Choice B is correct: If Excelsior goes out of business, the club stands to lose all the money it invested. None of the other choices hold as much authority. When a stock splits (Choice A), the value of each share is less by the same proportion. While newly formed companies may well trade on the OTC market (Choice C) rather than the more prestigious NYSE, that, in itself, does not prove it is a bad bet. Marianne’s opinion (Choice E) may well have been good when the stock was bought, but it may not be as valid now. And if Excelsior is addressing a potentially profitable need (Choice D), that supports the decision to buy it rather than otherwise.