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Assuming 100% exercise of rights, what are the (1) ex-rights stock price, (2) the value of a right, and (3) the appropriate subscription prices under the following scenarios?

Assuming 100% exercise of rights, what are the (1) ex-rights stock price, (2) the value of a right, and (3) the appropriate subscription prices under the following scenarios?

Essentials Of Investments
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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Quantum Tech Corp. is currently selling at $25 per share. There are 4 million shares outstanding. The company is planning to raise $8 million to finance a new project. Assuming 100% exercise of rights, what are the (1) ex-rights stock price, (2) the value of a right, and (3) the appropriate subscription prices under the following scenarios? a. Two shares of outstanding stock are entitled to purchase one additional share of the new issue. b. Four shares of outstanding stock are entitled to purchase one additional share of the new issue. c. In scenario b, how far could the stock price fall before shareholders would be unwilling to exercise their rights?
Transcribed Image Text:Quantum Tech Corp. is currently selling at $25 per share. There are 4 million shares outstanding. The company is planning to raise $8 million to finance a new project. Assuming 100% exercise of rights, what are the (1) ex-rights stock price, (2) the value of a right, and (3) the appropriate subscription prices under the following scenarios? a. Two shares of outstanding stock are entitled to purchase one additional share of the new issue. b. Four shares of outstanding stock are entitled to purchase one additional share of the new issue. c. In scenario b, how far could the stock price fall before shareholders would be unwilling to exercise their rights?
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