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
Next > < Previous

Related Solutions

The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it...
The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it places the bonds privately, the interest rate will be 10 percent. Thirty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 11 percent, and the underwriting spread will be 2 percent. There will be $140,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 5-year...
The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it...
The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it places the bonds privately, the interest rate will be 10 percent. Thirty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 11 percent, and the underwriting spread will be 2 percent. There will be $140,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 5-year...
The Landry Corporation needs to raise $1.30 million of debt on a 15-year issue. If it...
The Landry Corporation needs to raise $1.30 million of debt on a 15-year issue. If it places the bonds privately, the interest rate will be 11 percent, and $35,000 in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 10 percent, and the underwriting spread will be 4 percent. There will be $150,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 15 years,...
The Landers Corporation needs to raise $1.70 million of debt on a 20-year issue. If it...
The Landers Corporation needs to raise $1.70 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 12 percent. Twenty five thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 11 percent, and the underwriting spread will be 3 percent. There will be $110,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full...
The Landers Corporation needs to raise $1.70 million of debt on a 20-year issue. If it...
The Landers Corporation needs to raise $1.70 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 14 percent. Fifteen thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 12 percent, and the underwriting spread will be 1 percent. There will be $130,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 20-year...
The Landers Corporation needs to raise $2.10 million of debt on a 20-year issue. If it...
The Landers Corporation needs to raise $2.10 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 12 percent. Thirty five thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 10 percent, and the underwriting spread will be 5 percent. There will be $90,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full...
The Landers Corporation needs to raise $1.00 million of debt on a 25-year issue. If it...
The Landers Corporation needs to raise $1.00 million of debt on a 25-year issue. If it places the bonds privately, the interest rate will be 11 percent. Thirty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 10 percent, and the underwriting spread will be 4 percent. There will be $100,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 25-year...
The Landers Corporation needs to raise $1.90 million of debt on a 10-year issue. If it...
The Landers Corporation needs to raise $1.90 million of debt on a 10-year issue. If it places the bonds privately, the interest rate will be 10 percent. Twenty five thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 12 percent, and the underwriting spread will be 4 percent. There will be $110,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full...
nbc want to raise $5 million new equity via a rights issue with a subscription price...
nbc want to raise $5 million new equity via a rights issue with a subscription price of $40/share. Current shares sell (rights on) for $60 each. Calculate the minimum current value of a right and the ex-rights share price assuming there are 2 million shares outstanding before the rights issue. Check your ex rights share price using another formula.
Edison Corporation needs to raise funds to finance a plant expansion and has decided to issue...
Edison Corporation needs to raise funds to finance a plant expansion and has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 8 percent. Assume a par value of $1,000 and semiannual compounding. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Using the IRS amortization rule, what interest deduction can the company take...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT