hw 15 prob. 1-10

hw 15 prob. 1-10 - Big Time, Inc., is proposing a rights...

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Big Time, Inc., is proposing a rights offering. Presently there are 350,000 shares outstanding at $68 each. There will be 53,000 new shares offered at $54 each. a. The new market value of the company is $. (Do not include the dollar sign ($).) b. There are rights associated with one of the new shares. (Round your answer to 2 decimal places. (e.g., 32.16)) c. The ex-rights price is $. (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)) d. The value of a right is $. (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)) Explanation: 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($68) + 53,000($54) = $26,662,000 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/53,000 new shares = 6.6 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 = $26,662,000/(350,000 + 53,000) = $66.16 d. The value of a right = $68 – 66.16 = $1.84
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The Clifford Corporation has announced a rights offer to raise $40 million for a new journal, the Journal of Financial Excess . This journal will review potential articles after the author pays a nonrefundable reviewing fee of $4,000 per page. The stock currently sells for $40 per share, and there are 4.16 million shares outstanding. a. The maximum possible subscription price is $. The minimum price is anything greater than $. (Do not include the dollar signs ($).) b. If the subscription price is set at $24 per share, shares must be sold. (Round your answer to the nearest whole number. (e.g., 32)) It will take rights to buy one share. (Round your answer to 2 decimal places. (e.g., 32.16)) c. The ex-rights price is $. The value of a right is $. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)) d. Before and after the offering, the portfolio value of a shareholder who held 1,000 shares prior to the offering will be worth $ and $, respectively. Thus, a shareholder with 1,000 shares before the offering and no desire (or money) to buy additional shares is not harmed by the rights offer. (Do not include the dollar signs ($). Round your answers to the nearest whole dollar amount. (e.g., 32)) Explanation: a. The maximum subscription price is the current stock price, or $40. The minimum price is anything greater than $0. b.
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The number of new shares will be the amount raised divided by the subscription price, so: Number of new shares = $40,000,000/$24 = 1,666,667 shares And the number of rights needed to buy one share will be the current shares outstanding divided by the number of new share offered, so: Number of rights needed = 4,160,000 shares outstanding/1,666,667 new shares = 2.5
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This document was uploaded on 02/22/2011.

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hw 15 prob. 1-10 - Big Time, Inc., is proposing a rights...

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