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  • RWJ Chap 15 No 1

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    A company issued new shares at $70 each through a rights offering to existing shareholders. The calculations show the new market value is $36.2 million based on 400,000 existing shares valued at $81 each and 60,000 new shares. Shareholders would need 6.67 rights to purchase one new share at $80 each. The price per share after the offering is $78.70. The value of each right is $1.30, the difference between the price paid and the post-offering price. Rights offerings protect existing shareholders' proportional ownership and guard against underpricing new shares.

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    A company issued new shares at $70 each through a rights offering to existing shareholders. The calculations show the new market value is $36.2 million based on 400,000 existing shares valued at $81 each and 60,000 new shares. Shareholders would need 6.67 rights to purchase one new share at $80 each. The price per share after the offering is $78.70. The value of each right is $1.30, the difference between the price paid and the post-offering price. Rights offerings protect existing shareholders' proportional ownership and guard against underpricing new shares.

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    © All Rights Reserved
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    20 views1 page

    RWJ Chap 15 No 1

    Uploaded by

    kntl fvck
    A company issued new shares at $70 each through a rights offering to existing shareholders. The calculations show the new market value is $36.2 million based on 400,000 existing shares valued at $81 each and 60,000 new shares. Shareholders would need 6.67 rights to purchase one new share at $80 each. The price per share after the offering is $78.70. The value of each right is $1.30, the difference between the price paid and the post-offering price. Rights offerings protect existing shareholders' proportional ownership and guard against underpricing new shares.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    1.

    a New market value = 400,000($81) + 60,000($70) = $36,200,000

    b. Number of rights needed = 400,000 old shares/60,000 new shares = 6.67 rights per new share

    c. PX = $36,200,000/(400,000 + 60,000) = $78.70

    d. Value of a right = $80.00 – 78.70 = $1.30

    e. A rights offering usually costs less, it protects the proportionate interests of existing share-holders

    and also protects against underpricing.

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