Question

Prahm Corp. wants to raise $4.7 million via a rights offering. The company currently has 530,000 shares of common stock outstanding that sell for $55 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a spread of 6 percent. If you currently own 5,000 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 answer to 2 decimal places, e.g., 32.16.)

Answer 1

Finance to be raised Via Right issue	$4.7 million
Outanding shares	530000
Share price	$ 55
Subscription for Right share	$ 30
Spread	6%
Total no. of shares I own	5000
Workings
Subscription price after spread( 30* (.94))	28.2
No. of right share to be issued(4700000/28.2)	166667
Ex- right price= ((No. of share held * market price) + (Right share *Right price))/( No. of share held + Right share)
=((530000*55)+(166667*28.2))/(530000+166667)	$          48.59
Right Value= (55-48.59)	$            6.41
If I don't participate and sell my rights I will get (5000*6.41)	$ 32,050.00