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conducting a rights offering
conducting a rights offering. Currently, there are 2,000,000 existing shares outstanding at $90 each. The plan is to sell another 800,000 new shares through a rights offering at a subscription price of $85 each. a. (2 pts) What will be the new market value of the company? b. (2 pts) What will the stock price be after the rights offering? C. (1 pt) What is the value of a right?
Expert Solution
The new market value of the company is computed as follows:
= Current shares x Price per share + New shares x subscription price
= 2,000,000 x $ 90 + 800,000 x $ 85
= $ 248,000,000
b. The stock price after the rights offering is computed as follows:
= Value computed in part a / (current shares + new shares)
= $ 248,000,000 / (2,000,000 + 800,000)
= $ 248,000,000 / 2,800,000
= $ 88.57
c. Value of a right is computed as follows:
= Current price - price computed in part b
= $ 90 - $ 88.57
= $ 1.43
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