Consider the situation faced by the CFO of a company with a market capitalizatio
ID: 2732179 • Letter: C
Question
Consider the situation faced by the CFO of a company with a market capitalization of $260 Millions of USD, e.g. the firm has 25 million shares outstanding, so the shares are trading at $10.4 per share. The CFO needs to raise $80 Millions of USDs and announces a rights issue. Each existing shareholder is sent 2 right for every share he or she owns. The CFO has not decided how many rights will be required to purchase a share of new stock. At the current price per share, how many rights will the CFO require stockholders for purchasing a share of new stock and so be able to raise the $80 Millions of USDs?
Explanation / Answer
Total shares outstanding = 25 million
Number of right shares = 25 million *2 i.e 50 million
Number of right shares to be issued to raise 80 million at current price = 80 million /10.40 i.e 7.6923 million