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Unformatted text preview: CHAPTER 19 ISSUING SECURITIES TO THE PUBLIC Solutions to Odd-Numbered Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem. Basic 1. a. The new market value will be the current shares outstanding times the stock price plus the rights offered times the rights price, so: New market value = 350,000($85) + 70,000($70) = $34,650,000 b . The number of rights associated with the old shares is the number of shares outstanding divided by the rights offered, so: Number of rights needed = 350,000 old shares/70,000 new shares = 5 rights per new share c . The new price of the stock will be the new market value of the company divided by the total number of shares outstanding after the rights offer, which will be: P X = $34,650,000/(350,000 + 70,000) = $82.50 d. The value of the right Value of a right = $85.00 82.50 = $2.50 e . A rights offering usually costs less, it protects the proportionate interests of existing share-holders and also protects against underpricing. 3. Using the equation we derived in Problem 2, part c to calculate the price of the stock ex- rights, we can find the number of shares a shareholder will have ex-rights, which is: P X = $74.50 = [N($80) + $40]/(N + 1) N = 6.273 The number of new shares is the amount raised divided by the per-share subscription price, so: Number of new shares = $15,000,000/$40 = 375,000 And the number of old shares is the number of new shares times the number of shares ex- rights, so: Number of old shares = 6.273(375,000) = 2,352,273 5. Using X to stand for the required sale proceeds, the equation to calculate the total sale proceeds, including floatation costs is: X(1 .08) = $25M X = $27,173,913 required total proceeds from sale....
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- Fall '09