Show that the value of a right can be written as Value of a right = PRO

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Show that the value of a right can be written as

Value of a right = PRO − PX = (PRO − PS)/(N + 1)

Where PRO, PS, and PX stand for the rights-on price, the subscription price, and the ex rights price, respectively, and N is the number of rights needed to buy one new share at the subscription price.

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Corporate Finance

ISBN: 978-0071339575

7th Canadian Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro

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Question Posted: Jun 17, 2015 04:49 AM

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Show that the value of a right can be written as Value of a right = PRO

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Using P RO as the rightson price and P S as the subscription price we can express the pr...View the full answer

Corporate Finance

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