Leah, Inc., is proposing a rights offering. Presently there are 375,000 shares outstanding at $67 each....
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Leah, Inc., is proposing a rights offering. Presently there are 375,000 shares outstanding at $67 each. There will be 50,000 new shares offered at $58 each. |
| a. | What is the new market value of the company? |
| b. | How many rights are associated with one of the new shares? (Do not round intermediate calculations and round your answer to 1 decimal place, e.g., 32.1.) |
| c. | What is the ex-rights price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| d. | What is the value of a right? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Homework Answers
| a. The market value of company would include market value of existing shares plus market value of shares issued through rights offering | ||||
| Calculation of new market value of shares. | ||||
| Existing shares market value | $25,125,000 | 375,000*$67 | ||
| New shares market value | $2,900,000 | 50,000*$58 | ||
| New market value | $28,025,000 | |||
| b. | ||||
| Calculation of number of rights associated with one new shares | ||||
| Number of rights associated | Existing shares outstanding/Rights offered | |||
| Number of rights associated | 375,000/50,000 | |||
| Number of rights associated | 7.5 | |||
| c. | ||||
| Calculation of ex-rights price. | ||||
| Ex-rights price | ||||
| New market value of company | $28,025,000 | |||
| Number of shares available | 425,000 | |||
| Ex-rights price | $65.94 | |||
| d. | ||||
| Value of right is calculated as market value of share less ex-right price of shares. | ||||
| Value of right | 67-65.94 | |||
| Value of right | $1.06 | |||
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Leah, Inc., is
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