A company with 2 million shares of common stock currently outstanding is planning to sell 500,000...
A company with 2 million shares of common stock currently outstanding is planning to sell 500,000 new shares to its existing shareholders through a rights issue. The current market price of a share is $65, and the subscription price is $55. If the stock is selling rights-on, calculate the number of rights needed to purchase one of the new shares of common stock and the value of each right.
| a. Calculate the number of rights needed to buy one share | |
| b. Calculate the value of a right. | $ |
Homework Answers
a
number of rights needed to buy one share = current shares/new shares = 2000000/500000 = 4
b
value of a right = (current market price-subscription price)/number of rights needed to buy one share
=(65-55)/4 = 2.5
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