Unformatted text preview: many rights will be required to purchase one
new share of stock. These rights have value:
Shareholders can either exercise their rights or sell
Managerial Finance 6 Rights Offering Example
Popular Delusions, Inc. is proposing a rights
offering. There are 200,000 shares outstanding
trading at $25 each. There will be 10,000 new
shares issued at a $20 subscription price.
What is the new market value of the firm?
What is the ex-rights price?
What is the value of a right?
Managerial Finance 7 What is the new market value of the firm?
+ 10, 000 shares ×
$5, 200,000 = 200, 000 shares ×
shares There are 200,000
outstanding shares at
$25 each. Managerial Finance There will be 10,000 new
shares issued at a $20
subscription price. 8 What is the Ex-Rights Price?
There are 110,000 outstanding shares of a firm
with a market value of $5,200,000.
Thus the value of an ex-rights share is:
210,000 shares Managerial Finance 9 What is the Ex-Rights Price?
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- Spring '12
- Corporate Finance