help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Lime inc

Lime inc

Finance

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?

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

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

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)