A hypothetical through a rights offering. The company has 2,000,000 outstanding shares of stock with a market value of $55 per share. Cascade would like to raise an additional $15,000,000 in capital through a rights offering. The company will set the subscription price at $25 per new share. Could Cascade set the price in this rights offering at $75 per share and sell one-third as many new shares? Yes. That is a viable alternative. O There is no way to tell if that solution would work. No. The math doesn't work. The market price is $55 per share, so the rights have no value. Investors would not exercise rights to pay above market value for the stock.
A hypothetical through a rights offering. The company has 2,000,000 outstanding shares of stock with a market value of $55 per share. Cascade would like to raise an additional $15,000,000 in capital through a rights offering. The company will set the subscription price at $25 per new share. Could Cascade set the price in this rights offering at $75 per share and sell one-third as many new shares? Yes. That is a viable alternative. O There is no way to tell if that solution would work. No. The math doesn't work. The market price is $55 per share, so the rights have no value. Investors would not exercise rights to pay above market value for the stock.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A hypothetical corporation, Cascade Strategic & Innovative Solutions, has decided to raise capital
through a rights offering. The company has 2,000,000 outstanding shares of stock with a market
value of $55 per share. Cascade would like to raise an additional $15,000,000 in capital through a
rights offering. The company will set the subscription price at $25 per new share. Could Cascade
set the price in this rights offering at $75 per share and sell one-third as many new shares?
Yes. That is a viable alternative.
There is no way to tell if that solution would work.
No. The math doesn't work. The market price is $55 per share, so the rights have no value. Investors would
not exercise rights to pay above market value for the stock.
Expert Solution
Step 1
Right shares are those shares that are usually offered at a discount and are issued to current shareholders in proportion to their current holdings.
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