Question

Sheary, Inc., is proposing a rights offering. Presently, there are 800,000 shares outstanding at $77 each. There will be 160,000 new shares offered at $70 each.

a. What is the new market value of the company? (Do not round intermediate calculations.) New market value $

b. How many rights are associated with one of the new shares? (Do not round intermediate calculations.) Number of rights needed rights

c. What is the ex-rights price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Ex-rights price $

d. What is the value of a right? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of a right $

Answer 1

(a) - New market value of the company

= [Number of shares outstanding x stock price] + [Rights offered x right price]

= [800,000 Shares x $77 per share] + [160,000 Shares x $70]

= $ 6,16,00,000 + $ 1,12,00,000

= $ 7,28,00,000

(b) - Rights associated with one of the new shares

Number of rights = Number of shares outstanding / shares offered

= 5 rights per new share

(c) - Ex-rights price

= Total Market value / Total shares outstanding

= $ 7,28,00,000 / 960,000 Shares

= $ 75.83

(d) - Value of a right

Value of a right = $77.00 - $75.83

= $1.17