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Autumn 2005- TBS 907- TUTORIAL 7 - RIGHTS ISSUE

Autumn 2005- TBS 907- TUTORIAL 7 - RIGHTS ISSUE - TBS 907...

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Unformatted text preview: TBS 907- AUTUMN 2005 TUTORIAL 7 – RIGHTS ISSUE Question 1 OkieTech’s business is booming, and the company now needs a significant amount of new capital this year for new projects. The board of directors are concerned with the debt ratio and want to issue stock. You are requested to analyze offerings. Your charge is to compare rights offering with a general subscription to the investment public. The company has 10 million shares outstanding. The market price of the stock is currently $23 per share and for the last 52 weeks has been trading in the range of $20 to $25 per share. The amount of capital to be raised is set to be $110 million net. The legal and administrative costs are estimated to be $500,000 if a rights offering is made. The new issue can also be sold to the general public with the help of an investment banker. Merrill Lynch helped the company in its IPO a few years ago and has since been a major adviser for the company for security issues. Merrill Lynch believes that the stock can be priced at $21.50 per share. The net price (after paying legal issues....
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