You are the cfo of a company that has a market cap of 20B. The firm has 50 M shares outstanding, so the shares are trading at 400 per share. You need to raise 1B and have announced a rights issue. Each existing shareholder is sent one issuance right for every share they own. You need to decide how many rights you will require to purchase one share of new stock. You require 16 rights to purchase one share at a price of 320 per share, or 30 rights to purchase two shares at a price of 300 per share. How many shares will be issued with the first approach? How much money will be raised with the first approach? How many shares will be issued with the second approach? How much money will be raised with the second approach? What is the new stock price after issuing money with the second approach? What is the new stock price after issuing money with the first approach?
You are the cfo of a company that has a market cap of 20B. The firm has 50 M shares outstanding, so the shares are trading at 400 per share. You need to raise 1B and have announced a rights issue. Each existing shareholder is sent one issuance right for every share they own. You need to decide how many rights you will require to purchase one share of new stock. You require 16 rights to purchase one share at a price of 320 per share, or 30 rights to purchase two shares at a price of 300 per share. How many shares will be issued with the first approach? How much money will be raised with the first approach? How many shares will be issued with the second approach? How much money will be raised with the second approach? What is the new stock price after issuing money with the second approach? What is the new stock price after issuing money with the first approach?
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 11P
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You are the cfo of a company that has a market cap of 20B. The firm has 50 M shares outstanding, so the shares are trading at 400 per share. You need to raise 1B and have announced a rights issue. Each existing shareholder is sent one issuance right for every share they own. You need to decide how many rights you will require to purchase one share of new stock. You require 16 rights to purchase one share at a price of 320 per share, or 30 rights to purchase two shares at a price of 300 per share. How many shares will be issued with the first approach? How much money will be raised with the first approach? How many shares will be issued with the second approach? How much money will be raised with the second approach? What is the new stock price after issuing money with the second approach? What is the new stock price after issuing money with the first approach?
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