Question
14. Mitsi Inventory Systems Inc. has announced a rights offer. The company has announced that it...
14. Mitsi Inventory Systems Inc. has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $25. At the close of business the day before the ex-rights day, the company’s stock sells for $50 per share. The next morning you notice that the stock sells for $45 per share and the rights sell for $3 each. • What is the value of the stock ex rights? • What is the value of the rights? • Are the rights underpriced or overpriced? • What is the amount of instant profit you can make on ex-rights day per new share?
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