Question

Crawford, Inc., has 105,000 shares of stock outstanding. Each share is worth $72, so the company's market value of equity is $7,560,000. Suppose the firm issues 20,000 new shares at the following prices: $72, $69, and $64. What will the effect be of each of these alternative offering prices on the existing price per share? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Leave no cells blank; if there is no effect select "No change" from the dropdown and enter "O".) Price Ex Rights Effect Amount a. No change per share $72 $69 $64 per share per share

Answer 1

n = Number of old shares	105000
n1 = Number of shares to be issued as right shares	20000
P0 = Price before rights issue	72
P1 = Ex-right price
s = Subscription price

	Price Ex Rights [ ( (n*P0)+(n1*s) ) / (n+n1) ]	Effect	Amount
a. 72	72	No change	0	per share
b. 69	71.52	Price drop by	0.48	per share
c. 64	70.72	Price drop by	1.28	per share