Question

part A

Leah, Inc., is proposing a rights offering. Presently there are 600,000 shares outstanding at $57 each. There will be 25,000 new shares offered at $47 each.

a.	What is the new market value of the company? (Do not round intermediate calculations.)
b.	How many rights are associated with one of the new shares? (Do not round intermediate calculations.)
c.	What is the ex-rights price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	What is the value of a right?

Part B

Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $56 to $52.40 ($56 is the rights-on price; $52.40 is the ex-rights price, also known as the when-issuedprice). The company is seeking $28 million in additional funds with a per-share subscription price equal to $40.

How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.)

Part C

Nemesis, Inc., has 175,000 shares of stock outstanding. Each share is worth $73, so the company’s market value of equity is $12,775,000. Suppose the firm issues 32,000 new shares at the following prices: $73, $67, and $61.

What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the dropdown and enter "0". Round your answers to 2 decimal places, e.g., 32.16.)

Price Ex-Rights Effect Amount a. $ $    $ per share b. $ $    $ per share c. $ $    $ per share

Answer 1