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(1a) What was the total amount of new money raised? (1b) What was the prospective stock price after the issue? (1c) What was the value of the right to buy one new share?

(1a) What was the total amount of new money raised? (1b) What was the prospective stock price after the issue? (1c) What was the value of the right to buy one new share?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 12P
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In 2001 the Pandora Box Company made a rights issue at $5 a share to its current shareholders offering one new share for every four shares already held. Before the issue there were 10 million shares outstanding and the share price was $6. (1a) What was the total amount of new money raised? (1b) What was the prospective stock price after the issue? (1c) What was the value of the right to buy one new share? (1d) How far could the total value of the company fall before share-holders would be unwilling to take up their rights? (1e) Explain the difference between a uniform-price auction and a discriminatory auction. Why might you prefer to sell securities by one method rather than another?
Transcribed Image Text:In 2001 the Pandora Box Company made a rights issue at $5 a share to its current shareholders offering one new share for every four shares already held. Before the issue there were 10 million shares outstanding and the share price was $6. (1a) What was the total amount of new money raised? (1b) What was the prospective stock price after the issue? (1c) What was the value of the right to buy one new share? (1d) How far could the total value of the company fall before share-holders would be unwilling to take up their rights? (1e) Explain the difference between a uniform-price auction and a discriminatory auction. Why might you prefer to sell securities by one method rather than another?
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