Question

Bancroft Corporation currently has 12 million shares of stock outstanding at a price of $42 per share. The company would like to raise money and has announced a rights issue. Every existing shareholder will be sent three rights per share of stock that he or she owns. The company plans to require ten rights to purchase one share at a price of $42 per share. How much money will it raise if all rights are exercised?

  

The company will be able to raise $ ________million.  (Round to one decimal place.)

Answer 1

Total number of shares = 12 million

Existing shareholders will get 3 rights per one share

Therefore total rights = No of shares * rights per share
= 12000000 * 3
Total Rights = 36000000

10 rights required to purchase 1 share

Total No. of new shares that can be issued = Total Rights/ Rights required to purchase 1 share
= 36000000/10
Total No. of new shares that can be issued = 3600000

The amount that can be raised = 3600000 * 42
The amount that can be raised = $ 151200000

The maximum amount that a company can raise is $151.2 million if all the rights are exercised