Question: Mr. and Mrs. Anderson own five shares of Magic Tricks Corporation's common stock. The market value of the stock is $78. The Andersons also have $66 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $66 for each five shares currently owned (based on five rights). a. What is the value of a right? b. What is the value of the Andersons' portfolio before the rights offering? (Portfolio in this question represents stock plus cash.) c-1.Compute the diluted value (ex-rights) per share. c-2. If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock? d. If they sell their rights but keep their stock at its diluted value and hold on to their cash, what will be the value of their portfolio?
Question: Mr. and Mrs. Anderson own five shares of Magic Tricks Corporation's common stock. The market value of the stock is $78. The Andersons also have $66 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $66 for each five shares currently owned (based on five rights). a. What is the value of a right? b. What is the value of the Andersons' portfolio before the rights offering? (Portfolio in this question represents stock plus cash.) c-1.Compute the diluted value (ex-rights) per share. c-2. If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock? d. If they sell their rights but keep their stock at its diluted value and hold on to their cash, what will be the value of their portfolio?
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter13: Corporations: Earning & Profits And Distributions
Section: Chapter Questions
Problem 31P
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Transcribed Image Text:Question:
Mr. and Mrs. Anderson own five shares of Magic Tricks
Corporation's common stock. The market value of the stock
is $78. The Andersons also have $66 in cash. They have just
received word of a rights offering. One new share of stock can
be purchased at $66 for each five shares currently owned
(based on five rights).
a. What is the value of a right?
b. What is the value of the Andersons' portfolio before the
rights offering? (Portfolio in this question represents stock
plus cash.)
c-1.Compute the diluted value (ex-rights) per share.
c-2. If the Andersons participate in the rights offering, what
will be the value of their portfolio, based on the diluted value
(ex-rights) of the stock?
d. If they sell their rights but keep their stock at its diluted
value and hold on to their cash, what will be the value of their
portfolio?
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