Boles Bottling Co. has issued rights to its shareholders. The subscription price
ID: 2766965 • Letter: B
Question
Boles Bottling Co. has issued rights to its shareholders. The subscription price is $44 and eight rights are needed along with the subscription price to buy one of the new shares. The stock is selling for $53 rights-on.
What would be the value of one right? (Do not round intermediate calculations and round your answer to 2 decimal places.)
If the stock goes ex-rights, what would the new stock price be? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Boles Bottling Co. has issued rights to its shareholders. The subscription price is $44 and eight rights are needed along with the subscription price to buy one of the new shares. The stock is selling for $53 rights-on.
Explanation / Answer
a.
Value of Right= (Market Price-Subscription price)/(n+1)
=(53-44)/(8+1)
=9/9
=$1 per right
b.
Ex-Rights price= Rights-on-Price- Rights Price
=$53-$1
=$52
Because of rights value stock price falls