Question

Nemesis, Inc., has 100,000 shares of stock outstanding. Each share is worth $27, so the company’s market value of equity is $2,700,000. Suppose the firm issues 23,000 new shares at the following prices: $58, $55, and $50.

What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the dropdown and enter "0". Round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

(a) Issue price is $58
Ex-rights price per share = (current market price * current share) + (right price * right shares) /   (Current share + right share)
		((100000*27) + (23000*58)) /(100000+23000)
		32.79675
		or 32.80
Effect on existing price = Ex-right price - current market price
		32.80 - 27
		5.80
So, Ex-right price is $32.80 and existing price per dollar is increased by $5.80
(b) Issue price is $55
Ex-rights price per share = (current market price * current share) + (right price * right shares) /   (Current share + right share)
		((100000*27) + (23000*55)) /(100000+23000)
		32.23577	or 32.24
Effect on existing price = Ex-right price - current market price
		32.24 - 27
		5.24
So, Ex-right price is $32.24 and existing price per dollar is increased by $5.24
(c) Issue price is $50
Ex-rights price per share = (current market price * current share) + (right price * right shares) /   (Current share + right share)
		((100000*27) + (23000*50)) /(100000+23000)
		31.30081	or 31.30
Effect on existing price = Ex-right price - current market price
		31.30-27
		4.30
So, Ex-right price is $31.30 and existing price per dollar is increased by $4.30