mini_case_rights_issue_HSBC_521_2011

mini_case_rights_issue_HSBC_521_2011 - Rights Issue Rights...

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Rights Issue Rights Issue - Issue of securities offered only to current stockholders. Example - AEP Corp currently has 11 million shares outstanding. The market price is $24/sh. AEP decides to raise additional funds via a 1 for 11 rights offer at $22 per share. If we assume 100% subscription, what is the value of each right?
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Rights Issue Current Market Value = 11 mil x $24 = $264 mil Total Shares = 11 mil + 1 mil = 12 mil Amount of new funds = 1 mil x $22 = $22 mil New Share Price = (264 + 22) / 12 = $23.833/sh Value of a Right = 23.833 - 22 = $1.833 What is the payoff to a shareholder with 11 shares? Example - AEP Corp currently has 11 million shares outstanding. The market price is $24/sh. AEP decides to raise additional funds via a 1 for 11 rights offer at $22 per share. If we assume 100% subscription, what is the value of each right?
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Rights Issue (not fully subscribed) Suppose the previous rights offer is only 50% subscribed. What is the value of the right now?
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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mini_case_rights_issue_HSBC_521_2011 - Rights Issue Rights...

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