Valuing a Right 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 $40. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning you notice that the stock sells for $72 per share and the rights sell for $6 each. Are the stock and/or the rights correctly priced on the ex-rights day?

Describe a transaction in which you could use these prices to create an immediate profit. LO.1