You are the CFO of a company that has a market capitalization of $20 billion. The firm has 50 million shares outstanding, so the shares are trading at $400 per share. You need to raise $1 billion and have announced a rights issue. Each existing shareholder is sent one right for every share he or she owns. You need to decide how many rights you will require to purchase one share of new stock. You will require either sixteen (16) rights to purchase one share at a price of $320 per share, or thirty (30) rights to purchase two new shares at a price of $300 per share. a) Which approach will raise more money? Justify your answer. (20 points) b) What are the new stock prices after the issuance under the two approaches? Will shareholders accept the offers ? (20 points) c) Are the shareholders expected to be worse off, better off or indifferent to the two approaches? (10 points) Round your final answer to the nearest cent.

You are the CFO of a company that has a market capitalization of $20 billion. The firm has 50 million shares outstanding, so the shares are trading at $400 per share. You need to raise $1 billion and have announced a rights issue. Each existing shareholder is sent one right for every share he or she owns. You need to decide how many rights you will require to purchase one share of new stock. You will require either sixteen (16) rights to purchase one share at a price of $320 per share, or thirty (30) rights to purchase two new shares at a price of $300 per share. a) Which approach will raise more money? Justify your answer. (20 points) b) What are the new stock prices after the issuance under the two approaches? Will shareholders accept the offers? ( 20 points) c) Are the shareholders expected to be worse off, better off or indifferent to the two approaches? (10 points) Round your final answer to the nearest cent