Question
What if we lived in a world in which modigliani miller is true, that is no information or tax issues and capital structure is irrelevant.
What if we lived in a world in which modigliani miller is true, that is no information or tax issues and capital structure is irrelevant.
A company currently has 1,000 shares outstanding , each with a price of $200.
The firm announces a 1 for 5 (rights issue) of new stock, that is each stock holder would have the right to buy 1 stock for 5 stocks currently held. The price at which the new stock will be sold to existing shareholders will be $185.
Assume all shareholders act rationally in making their purchase decision, that is they purchase the rights stock if the price they will pay will be lower than the price of the stock after the rights issue is completed.
What will be the price of the stock be after the rights issue is completed?
Round the answer to two decimals.
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
10th Canadian edition
1259261018, 1259261015, 978-1259024979
