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Sergio [31]
3 years ago
8

Suppose you own 500,000 shares of common stock in a firm with 40 million total shares outstanding. The firm announces a plan to

sell an additional 5 million shares through a rights offering. The market value of the stock is $32.5 before the rights offering and the new shares are being offered to existing shareholders at a $2.50 discount. If you exercise your preemptive rights, how many of the new shares can you purchase?
Business
1 answer:
Roman55 [17]3 years ago
6 0

Answer:

62,500 shares

Explanation:

common stock = 500,000 shares

Total shares outstanding = 40 million

Percentage of existing holding:

= (Shares of common stock ÷ Total shares outstanding) × 100

= (500,000 ÷ 40,000,000) × 100

= 1.25%

New shares that can be purchased:

= Number of new shares sold × Percentage of existing holding

= 5 million × 1.25%

= 62,500 shares

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