Question

In: Finance

XYZ Corporation needs to raise additional capital and is considering a rights issue to raise $5...

XYZ Corporation needs to raise additional capital and is considering a rights issue to raise $5 million. There are currently 1,000,000 shares on issue, trading at $15.00. The company plans to increase the total number of shares on issue to 1,500,000. Calculate the theoretical ex-rights price and the value of a right.

a.

$18.25, $2.85
b.

$13.33, $3.33
c.

$15.00, $5.00
d.

$13.33, $1.67
e.

$12.5, $2.5

Solutions

Expert Solution

n = Number of old shares 1000000
n1 = Number of shares to be issued as right shares 500000
P0 = Price before rights issue 15
new issue price = 5000000/500000 10
P1 = Ex-right price.
s = Subscription price
Price Ex Rights [ ( (n*P0)+(n1*s) ) / (n+n1) ]                                                                      13.33
Value of right = 15-13.33                                                                        1.67
Ans = option d_ $13.33, $ 1.67

jeff jeffy answered 1 year ago
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