Question

Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional 1 million shares through a rights offering. The market value of the stock is $33 before the rights offering and the new shares are being offered to existing shareholders at a $3 discount.

a. If you exercise your preemptive rights, how many of the new shares can you purchase?

b. What is the market value of the stock after the rights offering? (Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1))

c-1. What is your total investment in the firm after the rights offering? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))

c-2. If you exercise your preemptive right how many original shares and how many new shares do you have?

d-1. If you decide not to exercise your preemptive rights, what is your investment in the firm after the rights offering? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161))

d-2. If you sell your rights rather than use them, how much money will you receive from the rights sale and what is the total value of your proceeds from the sale of the rights offering plus your investment in the firm? (Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161))

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins Cut a copy ▼ te /For at Painter B 1 u . Conditional F abat tell Ins. Delete Format ,Autos m37 A 'il a conditional as roat, styes. insert Delete Format Ξ í EF Merge & Center. $ , % , Sort &Find & Filter Select . 袖 2 Clear , Formatting ▼ as Table-styles ▼ Styles ▼ ▼ ▼ Clipboard AN145 AD Font Alignment er Cells dting AK 50000 25000 AE AF AG AH Al AJ AL AM AN AP AQ 145 C-2 ORIGINAL SHARES NEW SHARES 146 147 148 4 150 151 152 153 154 155 156 157 158 159 160 161 162 163 d-1 IF RIGHTS ARE NOT EXERCISED MARKET PRICE OF SHARE AFTER RIGHTS ISSUE TOTAL VALUE OF STOCK AFTER RIGHT SHARES/TOTAL NO OF SHARES AFTER RIGHTS ISSUE MARKET PRICE OF SHARE AFTER RIGHTS ISSUE 112.5/(2.5 +1)3 2.1429 32.14 THE VALUE OF INVESTMENT IF RIGHTS ARE NOT EXERCISED 50000 X 32.141607143 THE VALUE OF INVESTMENT IF RIGHTS ARE NOT EXERCISED (IN MILLIONS) 1.607 d-2IF RIGHTS ARE SOLD VALUE OF RIGHT MARKET PRICE AFTER RIGHTS ISSUE-OFFERED PRICE 32.14- 30 SO VALUE OF SALE OF RIGHTS 2.14 X 25000 SO VALUE OF SALE OF RIGHTS (IN MILLIONS ) 2.14 53571.43 0.054 NOW IF 52000 SHARES ARE ALSO SOLD THE PROCEEDS FROM SALE OF INVESTMENT WILL BE 32.14 X 50000 1607143 THE PROCEEDS (IN MILLIONS) TOTAL VALUE OF PROCEEDS 0.035 + 1.699 1.607 1.661 [0.0541.607] PMUTILITY, SHARPE, beta bond covexty DGM port future INDEX INTL CAP BUD LEASING PV, FV,ANNUITY DIR right dlean YIELD bond portfolo cap stru WACC RESI ex 4 11-03-2019