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The Warm Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained
The Warm Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $100 to $95 ($100 is the rights-on-price; $95 is the ex-rights price). The company is seeking $18 million in additional funds with a per-share subscription price of $50. a) How many rights will it take to purchase one new share? (6 marks) b) How many shares of stock are outstanding, before the offering? (4 marks) c) Explain why there is a tendency for IPOs to be underpriced. (5 marks)
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