Mr. and Mrs. Anderson own five shares of Magic Tricks Corporation's common stock. The market value of the stock is $60. The Andersons also have $42 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $42 for each five shares currently owned (based on five rights).

What is the value of a right?

What is the value of the Andersons' portfolio before the rights offering? (Portfolio in this question represents stock plus cash.)

Compute the diluted value (ex-rights) per share.

If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock?

If they sell their two rights but keep their stock at its diluted value and hold on to their cash, what will be the value of their portfolio?