Diamond Corporation has a promising new mineral claim which it wants to develop in the Northwest Territories. Diamond needs funds for the development so they have decided to issue new shares through a rights offering. The company currently has 5,000,000 common shares outstanding with a market value of $25 per shares. 1,000,000 new shares will be issued at a subscription price of $22 per share. Required: 1. How many rights are required to buy each share? (1 mark) 2. What should be the share price be immediately after the stock starts trading ex rights? (2 marks) 3. If Ricardo Tinto owns 10,000 common shares of Diamond, how many shares can be purchase and how to will they cost? (2 marks) Bill H. P. Billiton has $50,000 and is considering investing in Diamond immediately after the shares begin trading ex- rights. a) How many shares can Bill buy with his $50,000? (1 mark) b) How many rights can Bill buy with his $50,000? (1 mark) c) If Bill buys the shares and the ex rights share price rises to $32 what would his dollar profit and return be? (2 marks) Describe the benefits of a rights offering for an issuing Company. (3 marks) 4 5