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 $55 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a spread of 6 percent. If you currently own 5,000 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

Solution:-

First to calculate Net Proceeds to the company -

Net Proceeds = Subscription Price * (1-Spread)

Net Proceeds = $30 * (1-0.06)

Net Proceeds = $28.20

New Shares Offered =

New Shares Offered =

New Shares Offered = 1,66,667.67

To calculate Number of Right Needed per share-

Number of Right Needed =

Number of Right Needed =

Number of Right Needed = 3.18 Rights per share

To Calculate Ex-Right Stock Price -

STock price =

Stock price =

Stock price = 49.02

Value of Right = $55 - $49.02 = $5.98

Proceeds from selling the Right = 5,000 shares * $5.98

Proceeds from selling the Right = $29,904.31

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