HW3 ans

# 20 rights per share value of right rights on price

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Unformatted text preview: 25,000 shares 10,000,000/3,125,000 = 3.20 rights per share Value of right = (rights on price) − ( issue price) 6 − 4 = = €0.48 N+1 3.2 + 1 Assume receiving 1 right for every 3.2 shares held, and 1 right is needed for subscribing 1 new share (this is similar to the PowerPoint notes): Ex-rights share price = €5.52 (see below) Value of a right = €5.52 - €4 = €1.52 Stock price = (10,000,000 × 6) + 12,500,000 = €5.52 10,000,000 + 3,125,000 The share price would have to fall to the issue price per share, or €4 per share. Firm value would then be: 10 million × €4 = €40 million A stockholder who previously owned 16 shares had stocks with 16 / 10,000,000 = 1.6x10 -4 % of ownership and a value of: (16 × €6) = €96. This stockholder has now paid €20...
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