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Conso lidated Jewels needs to raise $4 million to pay for Diamonds in the Rough campaign. It wi ll raise the funds by offering 2
Consolidated Jewels needs to raise $4 million to pay for 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 one millionshares outstanding priced at $20 each.
a) What must be the subscription price on the rights of the company plans to offer?
b) What will be the share price after the right issue?
c) What will be 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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