Question

Barrett Mfg. is considering a rights offer. The company has determined that the ex-rights price will be $72. The current price is $82 per share and there are 40 million shares outstanding. The rights offer would raise a total of $80 million. What is the subscription price? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Subscription price

Answer 1

Ex-rights price = (Price before right*Number of shares before right + Proceeds from Right Issue)/Number of shares after right

72 = (82*40 million + 80 million)/Number of shares after right

Number of shares after right issue = 46.66666 million

Hence, Subscription Price = Proceeds from right/Number of shares in right issue

= 80 million/(46.6666 million - 40 million)

= $12 per share

Hence, the answer is $12 per share