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Lime inc
Lime inc. is currently keeping a constant debt policy with a perpetual debt amount of 100,000,00, interest rate of 4.35%, value of levered assets of 243,000,000 and an expected return on levered equity equal to 12.35%. The company has 500,000 shares outstanding. The company announces a right issuance: current shareholders can subscribe three new shares for every two shares they own at an issuance price of 213. Assuming a Lime’s shareholder has a right for each new share issued, what is the value of a right?
Expert Solution
Value of Levered Equity = Levered assets - Debt
= 243000000 - 100000000
= 143000000
Per Share Value = Levered Value of equity / No. of shares
=143000000/500000
= $286
Post Right Value of Share = Existing Value + Right subscription / Post Right No. of shares
= 143000000 + (500000*3/2 * 213) / (500000 + (500000*3/2)
= 242.2
Therefore Value of Right = Post Right value of share - Subscription Price
= 242.2 - 213
= $29.20
Value of right on one existing share = Value of Right * Right Ratio = 29.20 * 3/2 = $43.80
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