a. What is the total amount of new money raised? (Do not round intermediate calculations. Enter your answer in millions.) b. What is the expected stock price after the rights are issued? (Enter your answer rounded to 4 decimal places.) c. By what percentage would the total value of the company need to fall before shareholders would be unwilling to take up their

Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter13: Corporations: Organization, Stock Transactions, And Dividends
Section: Chapter Questions
Problem 4CP
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Pandora Box Company Inc. makes a rights issue at a subscription price of $5 a share. One new share can be purchased for every five
shares held. Before the issue there were 15 million shares outstanding and the share price was $12.
a. What is the total amount of new money raised? (Do not round intermediate calculations. Enter your answer in millions.)
b. What is the expected stock price after the rights are issued? (Enter your answer rounded to 4 decimal places.)
c. By what percentage would the total value of the company need to fall before shareholders would be unwilling to take up their
rights? (Do not round intermediate calculations. Enter your answer as a positive percent rounded to 2 decimal places.)
d. Suppose that you initially own 100 shares plus $100 in the bank. If you take up your rights issue, what will be your total wealth after
the issue is completed? (Do not round intermediate calculations. Enter your answer rounded to nearest whole dollar.)
e. Suppose that the company now decides to issue the new stock at $4 instead of $5 a share. How many new shares would it have
needed to raise the same sum of money? (Enter your answer in millions rounded to 1 decimal place.)
f. What is the expected stock price under this new arrangement after the rights are issued? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
g. If you take up your rights issue under this new arrangement, what will be the impact on your total wealth after the issue is
completed?
h. Which arrangement makes you better off: the first, the second, or neither?
a.
New money raised
million
b.
Stock price
per share
C.
Fall in total value
%
d.
Total wealth
е.
New shares
million
f.
Stock price
per share
g.
Impact on your total wealth
Which arrangement makes you
better off
h.
Transcribed Image Text:Pandora Box Company Inc. makes a rights issue at a subscription price of $5 a share. One new share can be purchased for every five shares held. Before the issue there were 15 million shares outstanding and the share price was $12. a. What is the total amount of new money raised? (Do not round intermediate calculations. Enter your answer in millions.) b. What is the expected stock price after the rights are issued? (Enter your answer rounded to 4 decimal places.) c. By what percentage would the total value of the company need to fall before shareholders would be unwilling to take up their rights? (Do not round intermediate calculations. Enter your answer as a positive percent rounded to 2 decimal places.) d. Suppose that you initially own 100 shares plus $100 in the bank. If you take up your rights issue, what will be your total wealth after the issue is completed? (Do not round intermediate calculations. Enter your answer rounded to nearest whole dollar.) e. Suppose that the company now decides to issue the new stock at $4 instead of $5 a share. How many new shares would it have needed to raise the same sum of money? (Enter your answer in millions rounded to 1 decimal place.) f. What is the expected stock price under this new arrangement after the rights are issued? (Do not round intermediate calculations. Round your answer to 2 decimal places.) g. If you take up your rights issue under this new arrangement, what will be the impact on your total wealth after the issue is completed? h. Which arrangement makes you better off: the first, the second, or neither? a. New money raised million b. Stock price per share C. Fall in total value % d. Total wealth е. New shares million f. Stock price per share g. Impact on your total wealth Which arrangement makes you better off h.
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