Question

PDQ Corporation has declared a rights offering to stockholders of record. The company has 5,000,000 shares outstanding and is selling an additional 1,000,000 shares via the rights offer. Which statements are TRUE regarding a customer who owns 500 shares of PDQ stock?I. The customer will receive 100 rightsII. The customer will receive 500 rightsIII. The customer may buy 100 sharesIV. The customer may buy 500 sharesA. I and IIIB. I and IVC. II and IIID. II and IV

Answer 1

Answer:

C

Explanation:

In a right issue  , an existing share is entitled to a right , therefore 5,000,000 existing share has 5,000,000 rights and 500 shares has 500 rights

New shares are issued in proportion to the right held by each shareholder

To buy 1000000 share , 5000000 rights are required

for an extra share ( 5000000/1000000) 5 rights required

500 shares with 500 right can buy  500/5 shares =100 shares