Question

Hickock, Inc., is proposing a rights offering. Presently there are 500,000 shares outstanding at $56 each. There will be 100,000 new shares offered at $48 each.

a.	What is the new market value of the company?

b.	How many rights are associated with one of the new shares?

c.	What is the ex-rights price?

d.	What is the value of a right?

Answer 1

a)

The new market value will be: 500,000 shares x $56/share + 100,000 new shares x $48/share $29,750,000 + $4,900,000 = $32,800,000

b.The number of rights associated with each old share is equal to the number of shares outstanding [500,000] divided by the number of new shares [100,000] = 5 rights per new share

c.The new price of the stock will be the new market value of the company divided by the total number of shares outstanding after the rights offer, which will be: 32.8 million/0.6mn=$54.67

d) Value of a right= 56-54.67=$1.33