Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0% rate of inflation in the future
, (2) the real risk-free ate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 2.40, and (5) its realized rate of return has average 15.0% over the last 5 years.(A) 22.61%(B) 15.96%(C) 19.00%(D) 21.66%(E) 22.04%
1 answer:
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Answer:
Price of stock after right issue = $22.81
Explanation:
given data
market capitalization = $500 million
share outstanding = 20 million
new share at a price = $1.00
to find out
What will the price of a share be after the SEO
solution
we get first current stock price that is express as
current stock price = .....................1
current stock price =
current stock price = $25
and
every ten rights to purchase a new share at a price of $1.00
so number of right company can issue =
number of right company can issue = 2 million
so
Total Fund raise through right issue = 2 million × $1
Total Fund raise through right issue = $2 million
and
Total value of market capitalization after right issue = $500 + $2
Total value of market capitalization after right issue = $502 million
and
Total number of share outstanding after right issue = 20 million + 2 million
Total number of share outstanding after right issue = 22 million
so
Price of stock after right issue will be =
Price of stock after right issue = $22.81