Homework Answers
Solution :-
(A) The new market value will be the current shares outstanding times the stock price plus the rights offered times the rights price
New market value = 500,000*($46) + 125,000*($38)
New market value = $27,750,000
(b). The number of rights associated with the old shares is the number of shares outstanding divided by the rights offered
Number of rights needed = 500,000 old shares / 125,000 new shares
Number of rights needed = 4 rights per new share
(c). The new price of the stock will be the new market value of the company divided by the total number of shares outstanding after the rights offer, which will be
Ex - Right Price = $27,750,000 / (500,000 + 125,000)
Ex- Right Price = $44.40
(d). The value of a right is the difference between the current price and the ex-rights price
= Current Price - Ex right Price = $46 - $44.4 = $1.6
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What is...
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