Question

Roth Corp. wants to raise $3.5 million via a rights offering. The company currently has 470,000 shares of common stock outstanding that sell for $25 per share. Its underwriter has set a subscription price of $18 per share and will charge the company a 8 percent spread. If you currently own 4,750 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? (Do not round your intermediate calculations.)

rev: 09_20_2012

$9,901.45

$9,730.35

$10,726.57

$10,829.71

$10,314.01

Answer 1

Particulars	Amount
Existing Number of Shares	4,70,000
Issue Price	18
Issue Size	35,00,000
Number of shares to be issued (3500000/(18-1.44(spread))	2,11,353
Ratio	2.22380
(470000/211352.66)
For 1 existing shareholder, has a right to buy 2.2238 shares
Value Per Share after right issue
The market value of the shares already held by a shareholder ($ 25 x 2.2238 shares)	55.595
Add: Price to be paid for buying one share	18
Total shares (3 .2238 shares)	73.595
Value Per Share	22.829
Value of Right
Market Price - Avergae Price = 25-22.829	2.1714
Number of shares held	4,750
Value by selling rights (4750*2.1714)	10,314