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How many rights will be required to purchase one new

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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 their rights. 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? $25 $20 + 10, 000 shares × $5, 200,000 = 200, 000 shares × share 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: $5,200,000 = $24.7619 210,000 shares Managerial Finance 9 What is the Ex-Rights Price? Thus the...
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