Required: (a) How many rights are required to purchase one new share? (b) What is the price of one share after the rights issue (Ex-right price)? (c) Compute the theoretical value of each right 19:32
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- You hold a 25% common stock interest in YouOwnIt, a family-owned construction equipment company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of 26,000,000. Two alternative plans have been suggested as methods of financing the expansion. Each plan is briefly described as follows: Plan 1.Issue 26,000,000 of 20-year, 8% notes at face amount Plan 2.Issue an additional 550,000 shares of 10 par common stock at 20 per share, and 15,000,000 of 20-year, 8% notes at face amount The balance sheet as of the end of the previous fiscal year is as follows: Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from 2,667,000 in the previous year to 5,000,000 for this year. Your sister has asked you, as the company treasurer, to prepare an analysis of each financing plan. 1. Prepare a table indicating the expected earnings per share on the common stock under each plan. Assume an income tax rate of 40%. Round to the nearest cent. 2. a. Discuss the factors that should be considered in evaluating the two plans. b. Which plan offers greater benefit to the present stockholders? Give reasons for your opinion.The Windsor Corporation has 120,000 shares outstanding with a current market price of $8.10 per share. The company needs to raise an additional $36,000 to finance new expenditures and has decided on a rights issue. The issue will allow current stockholders to purchase one additional share for 20 rights at a subscription price of $6 per share. How many new shares must be issued? What will be the ex-rights stock price? If the ex-rights price were set at $7.90, would you as a potential new stockholder choose to buy shares ex-rights or buy shares at the old price and exercise your rights?Raven Co. has just gone public. Under a firm commitment agreement, Raven received $21.39 for each of the 20 million shares sold. The initial offering price was $23 per share, and the stock rose to $28.41 per share in the first few minutes of trading. Raven paid $950,000 in direct legal and other costs and $320,000 in indirect costs. What was the flotation cost as a percentage of funds raised
- Wetterau, Incorporated, has announced a rights offer to raise $2.19 million. The company's stock currently sells for $77 per share, there are 165,000 shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $73 per share. What is the ex-rights price per share?Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $490,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answers to the nearest dollar. Loss should be indicated by a minus sign. $5 per share? $ $7 per share? $ $4 per share? $Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss did Security Brokers incur if the issue were sold to the public at the following average price? a. $5 per share b. $6 per share c. $4 per share
- The Telwar Company has just gone public. Under a firm commitment agreement, the company received $32.40 for each of the 4.14 million shares sold. The initial offering price was $34.80 per share, and the stock rose to $41.80 per share in the first few minutes of trading. The company paid $909,000 in legal and other direct costs and $258,000 in indirect costs. What was the flotation cost as a percentage of funds raised? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. A. $6.5 per share? B.$3.5 per share?The Taussig Company, whose stock price is currently $20.50, needs to raise$15 million by issuing common stock. Underwriters have informed Taussig’s managementthat it must price the new issue to the public at $20 per share to ensurethat all shares will be sold. The underwriters’ compensation will be 7 percent of theissue price, so Taussig will net $18.60 per share. The company will also incurexpenses in the amount of $252,000. How many shares must Taussig sell to net$15 million after underwriting and flotation expenses?
