Question

Bell Hill Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $69. The current price is $75 per share, and there are 20 million shares outstanding. The rights offer would raise a total of $40 million.

What is the subscription price?

Answer 1

			Rights issue is issuing shares to the existing shareholders
			Initial share capital		=	75X20	million $
						1500	million $
Additonal Capital added through rights issue					=	40	million $
			Total capital		=	1540	million $
			New share price		=	69	$
			Total number of shares after rights issue		=	22.3	million (1540/69)
			Additional no. of shares issued			22.3-20
					=	2.3	million
			Price of share issued		=	Total capital raised/ No. of additional shares
					=	17.25$	(40/2.3)