Question

Luther Industries currently has 100 million shares outstanding at a price of $25 per share. The company would like to raise money and has announced a rights issue. Every existing shareholder will be sent one right per share that he or she owns. The company plans to require twenty rights to purchase one share at a price of $20 per share. The amount of money that Luther will raise through its rights offering is closest to

Select one:

A. $100 million.

B. $125 million.

C. $500 million.

D. $400 million.

Answer 1

Solution :- Total Shares Outstanding = 100 million shares

Therefore total Rights = 100 millions ( As one right per share )

Now For Purchase 1 Share Rights Require = 20

Now in 100 Million Rights , Shares Purchased = 100 million / 20 = 5 million

Price per share = $20

Therefore amount of money that Luther will raise through its rights offering = 5 million * $20 = $100 millions

Therefore Correct Answer is (A)

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