Question

Chanelle, Inc., is proposing a rights offering. Presently, there are 600,000 shares outstanding at $57 each. There will be 25,000 new shares offered at $47 each.

a.	What is the new market value of the company? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

New market value

$

b.	How many rights are associated with one of the new shares? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Number of rights needed

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

Calculation of newmarket value of the company:

New market value of the company

= (Existing Shares * Market Value) + (New Shares Issued* Offered Price)

= (600000 * 57) + (25000 * 47)

= 35,375,000

New Market Value of the Company = $35,375,000

Requirement b:

Calculation of Numberof rights associated with one of the new shares:

Number of rights associated

= Number of Shares Outstanding / Number of new shares

= 600000 / 25000

= 24 rights per new share

Number of rights associated with one of the new shares =24 rights per share

Requirement C:

Calculation of Ex-Rights Price:

Ex-Rights Price

= New Market Value of the Company / Total Number ofShares

= $35,375,000 / (600000 + 25000)

= $35,375,000 / 625000

= $56.60

Ex-Rights Price = $56.60

Requirementd:

Calculation of Valueof Right:

Value of Right

= Old Market Value Ex-Rights Price

= $57 - $56.60

= $0.40

Value of Right = $0.40