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Suppose a firm wants to raise money through a seasoned equity offering. The firm’s corporate charter...

Suppose a firm wants to raise money through a seasoned equity offering. The firm’s corporate charter states that a rights offering must take place. Current shares outstanding: 20 million Current market price per share: $20/share Suppose the firm wants to raise $100 million in cash at a subscription price of $16/share.

a) How many rights will purchase one new share? b) On ex-rights day, what does the stock price change to, all else constant? c) What is the value of one right (i.e. its price)?

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