This is a complete question & solution is also attached just explain the calculations or rework it . Thanks Question : ABC Inc in considering a right offer . The company has considered that the Ex-right price would be the $52 . The current price is $55 per share & there are 5 Million shares outstanding .The right offer would raise a total of $60 Million .What is the subscription price? Solution : Attached Below
This is a complete question & solution is also attached just explain the calculations or rework it . Thanks Question : ABC Inc in considering a right offer . The company has considered that the Ex-right price would be the $52 . The current price is $55 per share & there are 5 Million shares outstanding .The right offer would raise a total of $60 Million .What is the subscription price? Solution : Attached Below
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 21MC
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This is a complete question & solution is also attached just explain the calculations or rework it . Thanks
Question :
ABC Inc in considering a right offer . The company has considered that the Ex-right price would be the $52 . The current price is $55 per share & there are 5 Million shares outstanding .The right offer would raise a total of $60 Million .What is the subscription price?
Solution :
Attached Below
![. The number of new shares is the amount raised divided by the subscription price, so:
Number of new shares = $60,000,000/$Ps
And the ex-rights number of shares (N) is equal to:
N= Old shares outstanding/New shares outstanding
N= 5,000,000/($60,000,000/SPs)
N= 0.0833PS
We know the equation for the ex-rights stock price is:
Px = [NPRo + Ps/(N + 1)
We can substitute in the numbers we are given, and then substitute the two previous results. Doing
so, and solving for the subscription price, we get:
Px = $52 = [N($60) + $Ps]/(N + 1)
S52 = [55(0.0833PS) + Ps]/(0.0833Ps + 1)
$52 = 4.58PS/(1 + 0.0833PS)
Ps = $41.60](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feaa9866a-a91d-4274-b200-10f628add328%2F41c060d4-cf79-4f6b-9cf7-25aa08934e03%2Fjqpn9x_processed.png&w=3840&q=75)
Transcribed Image Text:. The number of new shares is the amount raised divided by the subscription price, so:
Number of new shares = $60,000,000/$Ps
And the ex-rights number of shares (N) is equal to:
N= Old shares outstanding/New shares outstanding
N= 5,000,000/($60,000,000/SPs)
N= 0.0833PS
We know the equation for the ex-rights stock price is:
Px = [NPRo + Ps/(N + 1)
We can substitute in the numbers we are given, and then substitute the two previous results. Doing
so, and solving for the subscription price, we get:
Px = $52 = [N($60) + $Ps]/(N + 1)
S52 = [55(0.0833PS) + Ps]/(0.0833Ps + 1)
$52 = 4.58PS/(1 + 0.0833PS)
Ps = $41.60
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