QUESTION 7

"Consider the situation faced by the CFO of a company with a market capitalization of $500 Millions of USD, e.g. the firm has 50 million shares outstanding, so the shares are trading at $10 per share. The CFO needs to raise $500 Millions of USDs and announces a rights issue. Each existing shareholder is sent 5 right for every share he or she owns. The CFO has not decided how many rights will be required to purchase a share of new stock. At the current price per share, what is the maximum amount of rights the CFO can require stockholders for purchasing a share of new stock and so be able to raise the $500 Millions of USDs?"