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Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in
Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $61. At the close of business the day before the ex-rights day, the companys stock sells for $85 per share. The next morning, you notice that the stock sells for $70 per share and the rights sell for $2 each. What price should the stock sell for ex-rights? Show your calculations to get credit. Answers without numeric calculations will not get credit.
- What is the value of one right?
- Are the rights underpriced or overpriced?
- What is the amount of instant profit you can make on ex-rights day per new share?
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