Mitsi Inventory Systems. Inc.. has announced a rights offer. The company has ann
ID: 2779145 • 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 $25. 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 $42 per share and the rights sell for $2 each 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 $ What is the value of one right? Calculate your answer based on the actual ex-rights price. (Do not round intermediate calculations.) Value of one right $ I 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 $Explanation / Answer
portion of the total shares that the issue represents = 1-.8 = .2
Multiply the shares' portion by the share price before the rights issue = $ 50*.8 = $ 40
the price of the newly issued shares: $ 42
company's final shares that exist pre-offering =4/(1+4) = 0.8portion of the total shares that the issue represents = 1-.8 = .2
Multiply the shares' portion by the share price before the rights issue = $ 50*.8 = $ 40
the price of the newly issued shares: $ 42
42*0.2 = 8.4 Stocks ex-rights price = 40+8.4 = $ 48.4