Question

Marti owns 300 shares of ABC stock with a current value of $26 a share. The firm just issued one right for each of the 14,200 shares outstanding. The purchase of a share through the offering requires four rights plus $23. Assume Marti decides to sell her rights. All else constant, Marti will have ___ in cash and stock valued at ____ once the rights offering is completed.

A) $380; $7,600

B) $180; $7,620

C) $60; $7,920

D) $240; $7,740

E) $220; $7,760

Answer 1

Share price before right issue	26
Rights required for new share	4
Subscription price	23
Share price after right issue=	(Before right price * Shares required for right share + New subscription price)/Old share + Right share
Share price after right issue=	((26*4)+23)/(4+1)
Share price after right issue=	25.4
Value of 1 right	=26-25.4
Value of 1 right	0.6
Stock valuation after right issue	300*25.4	7620
Cash proceed from right sale	300*0.6	180
so option B is correct