ABC Company is currently quoted at 53 on NASDAQ. A Rights Offering has been decl
ID: 2720026 • Letter: A
Question
ABC Company is currently quoted at 53 on NASDAQ. A Rights Offering has been declared with an exercise price of 48, and 4.92 rights are needed to buy a new share. If you own 10 round lots of this company, answer the following:
1. What is the value of a right - - Rights-On ?
2. What is the price of the stock ex-rights ?
3. How many new shares can you buy with the rights you get ?
4. What action do you take to get the new shares ?
5. Show what would happen to the price of the stock after ex-rights date and subsequent.
Explanation / Answer
1.value of a right - - Rights-On = (Stock market price - subscription price)/no of right required to purchase one share
=(53-48)/4.92
=$ 1.01
2.price of the stock ex-rights = (Exisitng share capital + sale proceeds on issue)/no of shares outstanding
=(53*100+20*48)/120
=$ 52.1667
No of shares to be issued =10*10/4.92
=20 shares
3.new shares can you buy with the rights you get =10*10/4.92
=20 shares
4.action to be taken to get the new shares is make an application for subscribing rghts issue before expire of the issue
5.the price of the stock after ex-rights date and subsequent will be decreased