Knight Inventory Systems, Incorporated, has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $45. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning, you notice that the stock sells for $60 per share and the rights sell for $2 each. a. What is the value of the stock ex-rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of a right? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. Are the rights underpriced or overpriced? d. What is the amount of immediate profit per share that you can make on ex-rights day per share? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Knight Inventory Systems, Incorporated, has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $45. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning, you notice that the stock sells for $60 per share and the rights sell for $2 each. a. What is the value of the stock ex-rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of a right? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. Are the rights underpriced or overpriced? d. What is the amount of immediate profit per share that you can make on ex-rights day per share? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
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
Related questions
Question
Knight Inventory Systems, Incorporated, has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $45. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning, you notice that the stock sells for $60 per share and the rights sell for $2 each. |
a. | What is the value of the stock ex-rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
b. | What is the value of a right? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
c. | Are the rights underpriced or overpriced? |
d. | What is the amount of immediate profit per share that you can make on ex-rights day per share? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education