Answer:
20,000 ; $117.5 million; $2,350,000; $1678500; $1,078,500
Explanation:
Given the following :
Number of common stock shares owned = 50,000
outstanding shares = 2.5 million
Additional shares = 1 million
Market value of stock before rights offering = $35
Net stock price for existing shareholders ($5 discount) = $(35 - 5) = $30
A.) If you exercise your preemptive rights, how many of the new shares can you purchase?
Number of stocks / (outstanding shares ÷ additional shares)
[(50,000) ÷ (2.5 ÷1)] = 50,000/2.5 = 20,000
B.) b.What is the market value of the firm after the rights offering?
(Outstanding shares * market price) + ( additional shares * discount price)
(2.5million * $35) + (1 million * $30)
$87.5 + $30 = $117.5 million
C.) What is your total investment in the firm after the rights offering?
(stock shares held before offering * market price) + ( new shares that can be purchased * discount price)
(50,000 * $35) + (20,000 * $30)
1750000 + $600,000 = $2,350,000
D.)
Number of common stock shares *new market value after Issuance
New Market value after Issuance :
Market value of firm after offering / (outstanding + additional shares)
$117,500,000 / (2.5+1)million
$117,500,000 / 3,500,000
= $33.57
50,000 * $33.57 = $1678500
11)
Revenue from right sale :
Number of right shares * discount price
20,000 * $30 = $600,000
Value of proceed :
$1678500 - $600,000 = $1,078,500
