EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 20P
a.
Summary Introduction
To determine: When the rights issue is successful, how much money would be raised.
Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.
b.
Summary Introduction
To determine: The share price after the rights issue.
c.
Summary Introduction
To determine: The amount raised from the new plan.
d.
Summary Introduction
To determine: The share price after the rights issue.
e.
Summary Introduction
To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Marseille Manufacturing (MM) is considering raising money through a rights offering. MM currently has 10 million shares outstanding selling for €20 per share. Current shareholders will receive one right per share. Five rights are required to buy one share for €15. Will the rights be exercised? How much money will MM raise if all rights are exercised? What is the intrinsic value of a right (expected selling price for a single right)?
A firm wants to raise $40 million through a rights offering. The subscription price is set at $40. Currently, the company has 3 million shares outstanding with a current market price of $50 a share.
Each shareholder will receive one right for each share of stock they currently own. How many rights will be needed to purchase one new share of stock in this offering?
4
6.
Farah’s Fine Fashions (FFF) is considering raising money through a rights offering. FFF currently has 10 million shares outstanding selling for $22 per share. Current shareholders will receive one right per share. Five rights are required to buy one share for $20. Will the rights be exercised and if so, what is FFF’s new market value if all rights are exercised?
Select one:
a.
The rights will not be exercised.
b.
$220 million
c.
$260 million
d.
$321 million
e.
None of the above.
Chapter 23 Solutions
EBK CORPORATE FINANCE
Ch. 23.1 - Prob. 1CCCh. 23.1 - Prob. 2CCCh. 23.2 - Prob. 1CCCh. 23.2 - Prob. 2CCCh. 23.3 - List and discuss four characteristics about IPOs...Ch. 23.3 - Prob. 2CCCh. 23.4 - Prob. 1CCCh. 23.4 - What is the average stock price reaction to an...Ch. 23 - Prob. 1PCh. 23 - What are the advantages and the disadvantages to a...
Ch. 23 - Prob. 3PCh. 23 - Suppose venture capital firm GSB partners raised...Ch. 23 - Prob. 5PCh. 23 - Prob. 6PCh. 23 - Prob. 7PCh. 23 - Prob. 8PCh. 23 - Prob. 9PCh. 23 - Prob. 10PCh. 23 - Prob. 11PCh. 23 - Prob. 12PCh. 23 - What is IPO underpricing? If you decide to try to...Ch. 23 - Prob. 14PCh. 23 - Prob. 15PCh. 23 - Prob. 16PCh. 23 - Prob. 17PCh. 23 - Prob. 18PCh. 23 - Prob. 19PCh. 23 - Prob. 20P
Knowledge Booster
Similar questions
- 1.) You purchase 600 shares of XYZ Corporation at $30 per share using an initial margin of 70%. The stock is now selling for $41 per share and you want to use the excess equity in your account to pyramid. You want to purchase 400 shares of JT Corporation at $122 per share. If the minimum initial margin is 60%, what is the minimum amount of equity that you will have to put up in this transaction? 2. You purchase 500 shares of Johns Incorporated at $50 per share using an initial margin of 60%. Your maintenance margin is 25% and the minimum initial margin is 50%. A. How low can the stock price fall before you receive a margin call? B. If the stock price falls to $21 a share, how much additional equity must you add to your account?arrow_forwardFarah’s Fine Fashions (FFF) is considering raising money through a rights offering. FFF currently has 10 million shares outstanding selling for $22 per share. Current shareholders will receive one right per share. Four rights are required to buy one share for $20. Will the rights be exercised and if so, how much money will FFF raise if all rights are exercised? Select one: a. The rights will not be exercised. b. $4 million c. $40 million d. $50 million e. None of the above.arrow_forwardMarseille Manufacturing (MM) is considering an IPO. MM currently has 13 million shares outstanding and I currently own 8 million of those shares. MM plans to sell 3 million shares in the IPO. If all the new shares are primary shares, then what will my new ownership percentage be? If I decide to replace some of the primary shares with some of my shares as secondary shares in the IPO, then how many of my shares can I sell and still maintain 50% ownership?arrow_forward
- Atlas Inc. currently has 20 million shares outstanding. The current stock price is $35/share. The company has decided to do a rights issue. Every existing shareholder will be given 1 right for each share that they own. It will take 4 rights to buy one new share at a price of $25 per share. How much money will the company raise if all of the rights are exercised? Question 9 options: A) $700,000,000 B) $450,000,000 C) $500,000,000 D) $125,000,000 E) $105,000,000arrow_forwardCorporation A is deciding on an acquisition. Corporation A would buy all shares of corporation B, for a total of 500,000 shares of B. Currently, corporation B is expected to pay a constant dividend forever of $12 per share. The market price of B shares reflects these expectations, and the required rate of return is 4%. A can buy B shares at their current market price, and management expects to be able to exploit synergies between the two corporations and increase revenues. Thus, according to A’s management, if the acquisition takes place the dividend per share for next year is expected to be $12, but dividends are then expected to grow forever at a rate of 3% per year. The required rate of return on stock B would stay unchanged at 4%. What is the NPV of the acquisition? .arrow_forwardHoobastink Mfg. is considering a rights offer. The company has determined that the ex- rights price will be $61. The current price is $68 per share, and there are 10 million shares outstanding. The rights offer would raise a total of $60 million. What is the subscription price?arrow_forward
- 2. You purchase 600 shares of Jenkins Corporation at $30 per share using an initial margin of 70%. The stock is now selling for $41 per share and you want to use the excess equity in your account to pyramid. You want to purchase 400 shares of Watson Corporation at $122 per share. If the minimum initial margin is 60%, what is the minimum amount of equity that you will have to put up in this transaction?arrow_forwardToronto Corporation wants to raise $1,210,000 via a rights offering. The company currently has 220,000 shares of common stock outstanding that sells for $32 per share. The issue will allow current stockholders to purchase one additional share for 5 rights. a) What will be the ex-rights stock price, the value of a right, and the appropriate subscription price? b) If 2 rights are needed to purchase on additional share, how does the stockholders’ wealth change? c) Why do you think the company chose a rights issue rather than a general cash offer to raise new capital?arrow_forwardPlease Solve parts d) and e)arrow_forward
- Safari Ltd is a tour and travel company that wants to expand its business by opening a new branch in Nakuru . The finance manager has advised the CEO to consider an issue of 8% irredeemable preference shares whose par value is Sh 80 at an issue price of Sh76. What is the cost of this preference shares ?arrow_forwardRaybac is about to go public. It's present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?arrow_forwardToady Inc. has 2 million shares outstanding selling at $70 a share. The Company intends to undertake a rights issue that allows 1 share to be purchased for every 5 shares currently held by shareholders for $40 each. If all shareholders take up their entitlement, which one of the following is true? The stock price will fall to $65. The number of shares outstanding will fall to 1.6 million. The firm will raise $13.33 million. The total value of the firm will equal $124 million.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning