Question

Prahm Corp. wants to raise $4.7 million via a rights offering. The company currently has 530,000 shares of common stock outstanding that sell for $48 per share. Its underwriter has set a subscription price of $23 per share and will charge the company a spread of 5 percent. If you currently own 6,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights?

Answer 1

net proceeds =23(1-0.05) = 21.85

no of shares to be issued for rights = 4,700,000/21.85 =215102.9748 shares

right ratio  

=530000/215102.9748 =2.4639 per share

ex- right value

=(48+21.85)/(2.4639+1)

=20.1651

right value = 48- 20.1651=27.8349

net proceed from new = no of share hold *right ratio* right value

=6000*2.4639*27.8349

=411494.46