Mitsi Inventory Systems, Inc., has announced a rights offer. The company has ann
ID: 2650927 • Letter: M
Question
Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $53. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning, you notice that the stock sells for $65 per share and the rights sell for $2 each.
What is the amount of instant profit you can make on ex-rights day per share?
Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $53. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning, you notice that the stock sells for $65 per share and the rights sell for $2 each.
Explanation / Answer
What is the value of the stock ex-rights? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Stock price ex rights = Stock Offer Price + Value of Right
Stock price ex rights = 53 + (3*2)
Stock price ex rights = $ 59
What is the value of one right? Calculate your answer based on the actual ex-rights price. (Do not round intermediate calculations.)
Actual ex-rights price = $ 65
Stock offer Price = $ 53
Value of total Right = 65 - 53 = $ 12
No of right require to acquire Stock = 3
Value of one right = Value of total Right/No of right require to acquire Stock
Value of one right = 12/3
Value of one right $ 4
Are the rights underpriced or overpriced?
Underpriced
What is the amount of instant profit you can make on ex-rights day per share?
Instant profit = 4*3 - 2*3
Instant profit = $ 6