Some stockholders have a preemptive right that allows them to maintain their ownership percentage in the company by purchasing additional shares of any new stock issues.

Rights offerings, like preemptive rights, prevent dilution of stock for existing shareholders when new shares are issued. Which of these companies are likely to make a rights offering?

Companies with excess free cash flow that can be used to fund growth projects

Companies that need to raise additional capital to fund growth projects

Suppose you own $1,000$ shares of Seattle Seafood Co$.$ You received an announcement on December $15$ that stated Seattle Seafood Co$.$ plans to sell an additional $2$ million shares of common stock through a rights offering to shareholders as of January $15.$ The current market price of the Seattle Seafood Co$.$s shares is $$35\mathrm{.}20$ per share, and as per the announcement of the offering, the subscription price of the rights is $$30\mathrm{.}80.$ As an active shareholder, you collect and calculate the following information to use in your analysis of the rights offering:$($Note: Round your intermediate calculation to two decimal places. $)$

$$ Your review of your share transaction details reveals that you bought $800$ shares of Seattle Seafood Co$.$ on January $13$ and $200$ shares on January $15.$

$$ This means that you have shares that trade with rights$-$on and shares that trade ex$-$rights.

$$ Seattle Seafood Co$.$ has $11$ million shares of common stock outstanding. Thus, each right will enable you to buy shares through the rights offering, and it would take rights to purchase $1$ new share.

$$ Each stockholder receives $1$ right for each share currently held. You will be eligible to purchase new shares in the new share offering.

Based on the information you collected and calculated above, complete the following table for your analysis of the rights offering. $($Note: Round your intermediate calculation to two decimal places.$)$

Value

Formula value of a right for the rights$-$on case per right

Market price of Seattle Seafood Co$.$ stock on January $14$ per share

Formula value of a right when the stock is trading ex$-$rights per right

Formula value of a right for the rights$-$on case if market price increases to $$45\mathrm{.}10$ per right

Continue without saving