15-19. The current market price of Digicomms common stock is $40 per share. The company has 600,000 common shares outstanding. To finance its growing business, the company needs to raise $2 million. Due to its already high debt ratio, the only way to raise the funds is to sell new common stock. Alvin C. York, the vice president of finance of Digicomm, has decided to go ahead with a rights issue, but he is not sure at what price the existing shareholders would be willing to buy a share of new stock. Digicomms investment banker has suggested that an analysis based on a wide range of possible prices be carried out, and the subscription prices agreed upon were $36, $33, $29, and $26 per share of new stock. Digicomms net income for the year is $1 million.

Based on the preceding information, Mr. York has asked you to carry out the following analysis:

a. For each of the possible subscription prices, calculate the number of shares that would have to be issued and the number of rights required to buy one share of new stock.

b. For each of the possible subscription prices, calculate the earnings per share immediately before and immediately after the rights offering.

c. Guy Hamilton owns 10,000 shares of Digicomm stock. For each of the possible subscription prices, calculate the maximum number of new shares Guy would be able to buy. Under each of these cases, calculate Guys total claim to earnings before and after the offering.