IFM10 Ch 18AExt Test Bank

IFM10 Ch 18AExt Test Bank - EXTENSION 18A RIGHTS OFFERINGS...

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EXTENSION 18A RIGHTS OFFERINGS (Difficulty: E = Easy, M = Medium, and T = Tough) Note: None of the problems in this chapter extension are algorithmic. Multiple Choice: Problems Medium: Subscription price and ex-rights price Answer: d Diff: M 1 . Autore Company’s stock now sells for $50 per share, and there are 10,000,000 shares outstanding. The company plans to raise $100 million as new equity by selling common stock. Since the preemptive right is in the corporate charter, rights will be used. Management has decided that the rights should be worth $1 each: Such a price would assure that most stockholders would either exercise or sell their rights rather than just letting them expire, yet a careless failure to use the rights would not impose too severe a hardship on anyone. What subscription price should Autore set for its offering to obtain the desired price of the rights, and what will be the ex-rights stock price (M e ), assuming the theoretical relationships hold? (Hint: N = Number of old shares/Number of new shares; Number of new shares = Dollars to be raised/Subscription price per share.) Sub Price Ex-rights a. $39.65; $42.50 b. $40.25; $43.50 c. $42.65; $47.50 d. $44.55; $49.00 e. $46.65; $50.00 Rights offering Answer: d Diff: M 2 . To finance the construction of a new plant, Benefield Inc. must raise an additional $10,000,000 of equity capital through the sale of common
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IFM10 Ch 18AExt Test Bank - EXTENSION 18A RIGHTS OFFERINGS...

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