Question

Bell Hill Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $86. The current price is $95 per share, and there are 35 million shares outstanding. The rights offer would raise a total of $70 million.

What is the subscription price?

Answer 1

Calculate the new share out standing as follows:

Ex-right price = (Value before rights issue + rights offer) /New shares

New shares = (($35 million*95) + (70 million))/86

= 39.477 millions

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Calculate the subscription price as follows:

Subscription price = Rights offer / (New shares - Shares outstanding)

= $70 million / ( 39.477 million - 35 million)

= $15.64

Therefore, the subscription price is $15.64.