Question

A company currently has 132k shares outstanding, selling at $62 per share. The firm intends to raise $557k through a rights offering. Management suggests that a discount cannot fall below 13% as outlined in the previous issue, to which existing shareholders did not respond with much enthusiasm. They believe that a 39% discount offer is more appropriate. Also, the CEO is rejecting calls for raising capital through debt or preferred stock. Net earnings after taxes (EAT) are $691k. Furthermore, a recent corruption scandal involving a number of senior figures in the firm has come to light in the press; soon after the rights offering was announced – in other words, it was already too late. Among the immediate consequences were a fall in stock price by 24.38% and increased capital requirements by 64%.

Required: In percentage terms, determine by how much did the dollar value of one right change before and after the consequences described above, together with the 39% discount offer which was simultaneously taking place.

Answer% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Note: The term “k” is used to represent thousands (× $1,000).

Answer 1

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