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?

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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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