Roth Corp. wants to raise $3.3 million via a rights offering. The company currently has 520,000 shares of common stock outstanding that sell for $30 per share. Its underwriter has set a subscription price of $22 per share and will charge the company a 5 percent spread. If you currently own 6,300 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 your intermediate calculations.) $11,269.57 $12,208.70 $11,739.13 $12,326.09 $11,283.58
Net Proceeds to the company = Subscription Price(1 - Underwriter Spread)
= $22(1 - 0.05) = $20.9 per share
So, to raise the required funds, the company must sell:
New Shares Offered = $3,300,000/20.9 = 157,894.74
Number of rights needed = Current Number of shares outstanding / New Shares Offered
= 520,000 / 157,894.74 = 3.29 rights per share
Ex-rights stock price = [NPRO+ PS]/(N + 1)
= [3.29($30) + $22] / (3.29 + 1)
= 120.8 / 4.29 = $28.14
Value of a right = $30 - $28.14 = $1.86
Proceeds from sellling rights = no. of shares x rights value
= 6,300 x $1.86 = $11,739.13
Hence, Option "C" is corrent.
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