Firm CWBY needs to raise $4.2 billion dollars of new equity to fund new investments. The...

Firm CWBY needs to raise $4.2 billion dollars of new equity to fund new investments. The current market price of CWBY’s stock is $4.25 per share. There are currently 1 billion shares outstanding. The firm wants to conduct a 4 for 3 rights offer. The price per share in the offer will be $3.15 per new share. If we assume 100% subscription rate, what is the value of each right? What will be the impact on the market price of the stock?

Expert Solution

Particulars	No of shares	Price	Value
Original share holding	1000	4.25	4250
Rights share holding	1334	3.15	4200
Total	2334		8450

Right shares = 1000*4/3 = 1333.3333 =1334

Theoretical right price = existing value of shares + funds received through rights /

( old no of shares+ right shares

= 8450 / 2334

=3.621

jeff jeffy answered 2 years ago

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