Homework Answers
a). No. of shares to be issued = Amount to be raised / Subscription Price
= $10,000,000 / $20 = 500,000 shares
b). Rights for 1 share = Current Shares outstanding / New shares to be issued
= 5,000,000 / 500,000 = 10 rights
c). Ex-Rights Price = [Market Value of shares prior to rights issue + Cash raised from rights issue] / Number of shares after rights issue
= [(10 * $25) + $20] / [10 + 1]
= $270 / 11 = $24.55
Value of Price = Current Stock Price - Ex-rights Price = $25 - $24.55 = $0.45
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