Question

Currently, you own 5.4 percent of the outstanding stock of Keiffer Industries. The firm has decided to issue additional shares of stock and has given you the first option to purchase 5.4 percent of those additional shares. Which one of the following will you be participating in if you opt to purchase the shares you have been offered

Answer 1

We will be participating in (A) rights offer if you opt to purchase the shares you have been offered.

What is Rights Offering?

• A rights offering (rights issue) is a set of rights granted to existing shareholders to purchase more stock shares in proportion to their existing holdings, known as subscription warrants.
• These are considered a sort of option since they enable stockholders of a firm the right, but not the responsibility, to purchase more shares in the company.
• The subscription price at which each share may be purchased in a rights offering is often discounted relative to the current market price.
• Rights are frequently transferrable, giving the possessor the ability to sell them on the open market.
• Each shareholder in a rights offering receives the opportunity to purchase a pro-rata allotment of extra shares at a certain price and within a specific time frame (usually 16 to 30 days).

Therefore, we will be participating in (A) rights offer if you opt to purchase the shares you have been offered.

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The complete question is given below:

Currently, you own 5.4 percent of the outstanding stock of Keiffer Industries. The firm has decided to issue additional shares of stock and has given you the first option to purchase 5.4 percent of those additional shares. Which one of the following will you be participating in if you opt to purchase the shares you have been offered?

A. Rights offer

B. Red herring offer

C. Private placement

D. IPO

E. General cash offer