Question

XYZ Corporation has declared a rights offering to stockholders of record on Wednesday, November 15th. Under the offer, shareholders need 5 rights to subscribe to 1 new share at a price of $24. Fractional shares can be rounded up to purchase 1 full share. A customer owning 200 shares wishes to subscribe. The market price of the stock is currently $34. The customer can buy:

Answer 1

Answer:

The customer can buy 40 shares at $960.

Explanation:

Step 1: The number of shares the customer can buy can be calculate as follows:

NSCB = NSOC ÷ NSNS ......................................... (1)

Where;

NSCB = Number of shares a customer can buy = ?

NSOC = Number of shares owned by the customer = 200

NSNS = Number of shares needed to subscribe to one new share  = 5

Substituting the values into equation (1), we have:

NSCB = 200 ÷ 5 = 40 shares

Therefore, The number of shares the customer can buy is 40 shares.

Step 2: The amount to pay for the number of shares the customer can buy can be calculated as follows:

ANSCB = NSCB × PNS .............................. (2)

Where;

ANSCB = Amount to pay for the number of shares the customer can buy = ?

NSCB = Number of shares a customer can buy = 40

PNS = Price of the new share  = $24

Substituting the values into equation (2), we have:

ANSCB = 40 × 24 = $960

Therefore, the customer can buy 40 shares at $960.