Your company has 100 million shares outstanding and the current share price of $12 per share. Your firm will have a rights offer which requires 10 rights to buy a share at the price of $10 per share. a) What will be the new share price after the rights offer is completed if there is 100% participation? b) What will be the new share price after the rights offer is completed if there is 80% participation? c) Calculate the total amount you will have invested in the firm if you participate in the rights offer and you have 20 shares d) Calculate the total new value of your portfolio if you participate and 100% of shares holders do as well e) Calculate the total new value of your portfolio if you participate and 80% of shares holders do as well f) Calculate the total new value of your portfolio if you donât participate but 100% of shares holders do participate.(use the price from if 100% participate) g) Calculate the total new value of your portfolio if you donât participate and 80% of shares holders do participate. h) If some are concerned that the price of $10 per share will not encourage participation in a rights offer what price would encourage greater participation? i) What advantage does a rights offer have over a cash offer to issue new shares?
Related questions
| Mr. and Mrs. Anderson own three shares of Magic Tricks Corporation's common stock. The market value of the stock is $70. The Andersons also have $58 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $58 for each three shares currently owned (based on three rights). |
| (Do not round intermediate calculations and round your answers to the nearest whole dollar.) |
| a. | What is the value of a right? |
| Value per right | $ |
| b. | What is the value of the Andersonsâ portfolio before the rights offering? (Portfolio in this question represents stock plus cash.) |
| Portfolio value | $ |
| c-1. | Compute the diluted value (ex-rights) per share. |
| Diluted value | $ |
| c-2. | If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock? |
| Portfolio value | $ |
| d. | If they sell their two rights but keep their stock at its diluted value and hold on to their cash, what will be the value of their portfolio? |
| Portfolio value | $ |
| Roth Corp. wants to raise $4.6 million via a rights offering. The company currently has 560,000 shares of common stock outstanding that sell for $70 per share. Its underwriter has set a subscription price of $40 per share and will charge the company a spread of 2 percent. |
| If you currently own 2,500 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Subscription price | $ |
