Question

The Natureale Corporation currently has 3 million shares outstanding. The stock sells for $46 per shares....

The Natureale Corporation currently has 3 million shares outstanding. The stock sells for $46 per shares. To raise $20 million for a new inspection camera system , the firm is considering a right offering at $25 per share. What is the value of right in this case?

Group of answer choices

$3.16

$3.37

$3.85

$4.42

None of above is correct.

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Homework Answers

Answer #1

Step 1 . Calculation of New Market Value

The new market value will be

Old market value = $ 3 million X 46 per share = 138 million

right issue = $20 million

New market value = $ 158 million

Step 2 Calculation of New Shares Issued

No. of new shares= $20 million/$25 per share = 0.80 million shares

Step 3 Calculation of ex-right Price

The new price of the stock will be the new market value of the company divided by the total number of shares outstanding after the rights offer, which will be

= $ 158 million / ($3 million + $.80 million ) = $ 41.58

Step 3 Calculation of Value of Right

= $46.00 - $41.58 = $4.42

Therefore, the correct answer is option (D) i.e. $4.42

For any other clarrification please comment.

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