Consolidated Jewels needs to raise $2 million to pay for its Diamonds in the Rough campaign. It

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Consolidated Jewels needs to raise $2 million to pay for its Diamonds in the Rough campaign. It will raise the funds by offering 200,000 rights, each of which entitles the owner to buy one new share. The company currently has outstanding 1 million shares priced at $20 each.

a. What must be the subscription price on the rights the company plans to offer?

b. What will be the share price after the rights issue?

c. What is the value of a right to buy one share?

d. How many rights would be issued to an investor who currently owns 1,000 shares?

e. Show that the investor who currently holds 1,000 shares is unaffected by the rights issue. Specifically, show that the value of the rights plus the value of the 1,000 shares after the rights issue equals the value of the 1,000 shares before the rights issue.

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Given data Amount to be raised 200 million Right issue 200000 Outstanding shares 100 milli...View the full answer

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Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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Question Posted: Sep 27, 2016 10:43 AM

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Consolidated Jewels needs to raise $2 million to pay for its Diamonds in the Rough campaign. It

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Given data Amount to be raised 200 million Right issue 200000 Outstanding shares 100 milli...View the full answer

Fundamentals of Corporate Finance

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