Yonkers Inc. is issuing new common shares in a rights offer in order to raise $10...
Yonkers Inc. is issuing new common shares in a rights offer in order to raise $10 million for a new project. The subscription price for each new share is $10. The firm currently has 2 million common shares outstanding, each priced at $25 in the market. What is the price of each right?
Select one:
a. $1
b. $2
c. $5
d. $10
e. $15
Homework Answers
Number of right shares to issue= 10 million/10 =1 million
So 2 rights required to buy 1 share,
Value of right =(Stock Price - Rights subscription price per share) / (Number of rights required to buy one share + 1)
=(25-10)/(2+1)
=5
The answer is c.
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