Mitsi Inventory Systems, Inc., has announced a rights offer. The company has ann
ID: 2731507 • Letter: M
Question
Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $29. At the close of business the day before the ex-rights day, the company’s stock sells for $50 per share. The next morning, you notice that the stock sells for $44 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 four rights to buy a new share in the offering at a subscription price of $29. At the close of business the day before the ex-rights day, the company’s stock sells for $50 per share. The next morning, you notice that the stock sells for $44 per share and the rights sell for $2 each.
Explanation / Answer
Ans: Stock price Ex right=( 4*50+29)/5 45.8 Right Value= $50-$45.8 $4.2 Right is underprice to make instant profit buy 4 right @ 2 and after that purchase a new share @$29 by using this and sell the share immediately @ $44