2. 2. Rights offerings [LO 15.4] The Pawleena Company has announced a rights offer to raise $35...
Question:
2. 2.
Rights offerings [LO 15.4] The Pawleena Company has announced a rights offer to raise $35 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a non-refundable reviewing fee of $5 000 per page. The shares currently sell for $53 per share and there are 3.9 million shares outstanding.
1. What is the maximum possible subscription price? What is the minimum?
2. If the subscription price is set at $47 per share, how many shares must be sold? How many rights will it take to buy one share?
3. What is the ex-rights price? What is the value of a right?
4. Show how a shareholder with 1 000 shares before the offering and no desire (or money) to buy additional shares is not harmed by the rights offer.
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781743768051
8th Edition
Authors: Stephen A. Ross, Rowan Trayler, Charles Koh, Gerhard Hambusch, Kristoffer Glover, Randolph W. Westerfield, Bradford D. Jordan