Question

Prahm Corp. wants to raise $4.4 million via a rights offering. The company currently has 500,000 shares of common stock outstanding that sell for $45 per share. Its underwriter has set a subscription price of $20 per share and will charge the company a spread of 6 percent. If you currently own 3,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights?

Answer 1

Answer:

price for selling 3000 share right is $25060.87

Explanation:

Given data:

Total Amount raised=   $4,400,000  

Spreading rate = 6%

Subscription price =   $20 per share

Number of share owned by company = 500,000

Per share cost  = $45

Totals share own in the company = 3000

subscription price after deducting spreading rate $= 20\times (1 -0.06) = 18.80$

Now, Right share $= \frac{4400000}{18.8} = 234,043$

Right price is calculated as

Right price = ((Number of share held * market price) + (Right share *Right price))/( Number of share held + Right share)

plugging all value in above relation

                 $= \frac{500000 \times 45 + 234043\times 18.8}{500000 + 234043}$

Right share = $36.65

single right value = 45- 36.65 = $8.35

Price for 3000 share right = 8.35 *3000 = $25060.86