Question

# The Timken Company has announced a rights offer to raise \$5.1 million. The company's stock currently...

The Timken Company has announced a rights offer to raise \$5.1 million. The company's stock currently sells for \$34 per share, there are 1.207 million shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at \$30 per share. What is the ex-rights price per share?

Multiple Choice

• \$33.58

• \$33.51

• \$33.09

• \$32.87

• \$33.42

Number of new shares to be issued

Number of new shares to be issued = Amount raised / subscription price per share

= \$5,100,000 / \$30 per share

= 170,000 shares

Number of rights needed

Number of rights needed = Number of shares outstanding / Number of new shares to be issued

= 1,207,000 shares / 170,000 shares

= 7.10 right per share

Ex-rights price per share

Ex-rights price per share = [Subscription price per share + (Number of rights needed x selling price per share)] / [1 + Number of rights needed]

= [\$30 + (7.10 x \$34)] / [1 + 7.10]

= [\$30 + \$241.40] / 8.10

= \$271.40 / 8.10

= \$33.51 per share

“Hence, the ex-rights price per share will be \$33.51 per share”

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