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5.3 2046196092

Thus the value of a right is 02381 25 247619

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Unformatted text preview: value of a right is $0.2381 = $25 – $24.7619 Managerial Finance 0 19.7 The Rights Puzzle Over 90% of new issues are underwritten, even though rights offerings are much cheaper. A few explanations: Underwriters increase the stock price. There is not much evidence for this, but it sounds good. The underwriter provides a form of insurance to the issuing firm in a firm-commitment underwriting. The proceeds from underwriting may be available sooner than the proceeds from a rights offering. No one explanation is entirely convincing. Managerial Finance 1 19.8 Shelf Registration Permits a corporation to register an offering that it reasonably expects to sell within the next two years. Not all companies are allowed shelf registration. Qualifications include: The firm must be rated investment grade. The cannot have recently defaulted on debt. The market capitalization must be > $75 m. No recent SEC violations. Managerial Finance 2 19.9 The Private Equity Market The previous sections of this chapter assumed that a company is big enough, successful enough, and old enough to raise capital in the public equity market. For star...
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