Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Image Storage Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using a (North American) rights issue. If the current stock price

Image Storage Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using a (North American) rights issue. If the current stock price is $50 and the subscription price is $47/share, the value of a right is calulated explain and interpret the results in a one page memo to management. The newly issued shares which are offered to the existing shareholders are known as right shares.

Suppose the rights required to buy one share is (1,000,000 / 500,000 =) 2.

The value of right during the cum-rights period = (Stock price Subscription price) / (Rights required + 1)

= ($50 - $47) / (2 + 1)

= $1

The value of right during the ex-rights period = (Stock price Subscription price) / (Rights required)

= ($50 - $47) / 2

= $1.50

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Sector Reform And Privatization In Transition Economies

Authors: John Doukas, Victor Murinde, Clas Wihlborg

1st Edition

044482653X, 9780444826534

More Books

Students also viewed these Finance questions