Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 15PS
a)
Summary Introduction
To determine: Total number of shares needed.
b)
Summary Introduction
To determine: Shares per right and opportunity value.
c)
Summary Introduction
To determine: Prospective stock price after the issue.
d)
Summary Introduction
To determine: Firm’s total value.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
3)
A company entirely financed with equity has 1,800,000 shares outstanding and decides to issue new shares with subscription rights. The price of shares before the issuance was 42 euro, and the price at which the shares are issued is 38 euro. If the price after the share issuance is going to be 40 euro, determine the number of subscription rights that a shareholder needs to buy one new share in the issuance with subscription rights.
In the Republic of Atlantis the regulators decide to allow private placement of equity (see problem set 2 extra questions). A firm called Fish Inc. currently trades in their stock market at a price of $3 (Atlantic dollars) with 100 million shares outstanding. The manager currently needs to raise extra $300m. They decide to do that in a private placement and sell the shares to an individual investor at a discount of 20% of current share price. Which of the following statements is (are) true:
(i) Private placements are fair.
(ii) The company will issue 125m extra shares.
(iii) Pre-existing investors will lose $34p per share.Required to answer. Single choice.
Toronto 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?
Chapter 15 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 15 - Prob. 1PSCh. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Private placements You need to choose between...Ch. 15 - Prob. 7PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...
Ch. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 12PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...Ch. 15 - Prob. 19PSCh. 15 - Prob. 20PSCh. 15 - Prob. 21PSCh. 15 - Dilution Here is recent financial data on Pisa...
Knowledge Booster
Similar questions
- Walgreen Company (NYSE: WAG) is currently trading at $48.75 on the NYSE. Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50. Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on a block trade of 100 shares? A) No, no arbitrage opportunity exists. B) Yes, buy on NASDAQ and sell on NYSE, make $25. C) Yes, buy on NYSE and sell on NASDAQ, make $25. D) Yes, buy on NASDAQ and sell on NYSE, make $250.arrow_forwardJiffy Wax Corp. can sell common stock for $ 15 per share and its investors require a 14% return. However, the administrative or flotation costs associated with selling the stock amount to $ 2.40 per share. What is the cost of capital for Jiffy Wax if the corporation raises money by selling common stock? Select one: a. 14.00% b. 21.50% C 30.00% d. 16.67%arrow_forwardAccording to a company press release, on January 5, 2012, Hansen Natural Corporation changed its name to Monster Beverage Corporation. According to Yahoo Finance, on that day the value of the company stock (symbol: MNST) was $15.64 per share. On January 5, 2018, the stock closed at $63.49 per share. This represents an increase of nearly 306%. A. Discuss the factors that might influence the increase in share price. B. Consider yourself as a potential shareholder. What factors would you consider when deciding whether or not to purchase shares in Monster Beverage Corporation today?arrow_forward
- Amherst Corporation, an investment banking company, often has extra cash to invest. Suppose Amherst buys900 shares of Hurricane Corporation stock at $57 per share, representing less than 5% ofHurricane’s outstanding stock. Amherst expects to hold the Hurricane stock for one month andthen sell it. The purchase occurs on December 15, 2018. On December 31, the market price of ashare of Hurricane stock is $58 per share.Requirements1. What type of investment is this for Amherst? Give the reason for your answer.2. Record Amherst’s purchase of the Hurricane stock on December 15 and the adjustment tomarket value on December 31.3. Show how Amherst would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018.arrow_forwardBoles Bottling Co. has issued rights to its shareholders. The subscription price is $74 and seven rights are needed along with the subscription price to buy one of the new shares. The stock is selling for $96 rights-on. a. What would be the value of one right? (Do not round intermediate calculations and round your answer to 2 decimal places.) b. If the stock goes ex-rights, what would the new stock price be? (Do not round intermediate calculations and round your answer to 2 decimal places.)arrow_forwardAVC Auctions (AVCA) has offered its 16.6 million shares in a Dutch Auction IPO. The following bids have been received:Bidder Quantity Price 1 4,150,000 $ 25.60 2 5,500,000 $ 25.35 3 7,000,000 $ 25.00 4 2,250,000 $ 24.75How many shares will Bidder 3 be able to purchase? How much will Bidder 3 have to spend to purchase all of the shares that have been allocated to them?arrow_forward
- please help me asappp.... Consider the case of Tobotics Inc.: Tobotics Inc. currently has 20,000 shares of common stock outstanding. Its management believes that its current stock price of $90 per share is too high. The company is planning to conduct stock splits in the ratio of two for one as described in the animation. If Tobotics Inc. declares a two-for-one stock split, what will be the price of the company’s stock after the split, assuming that the total value of the firm’s stock remains the same after the split? ______ Scorecard Corp. is one of Tobotics Inc.’s leading competitors. Scorecard Corp.’s market intelligence research team shares Tobotics Inc.’s plans of announcing a stock split, influencing the distribution policymakers. Consequently, executives at Scorecard Corp. decide to offer stock dividends to their shareholders. A stock dividend is another way of keeping the stock price from going too high. Scorecard Corp. currently has 1,100,000 shares of common stock outstanding.…arrow_forwardA firm desires to sell stock to the public. The underwriter charges $0.4 million in fees and offers to buy six million shares from the firm at a price of $30 per share. In addition, registration and audit fees total $120,000, and marketing and miscellaneous fees add up to another $65,000. The underwriter expects to earn gross proceeds per share of $36. a) What is the issuing firm's out-of-pocket dollar transaction cost to issue the stock? b) Immediately after the stock was issued, the stock price rose to $38. What is the issuing firm's opportunity cost? c) What is the total issuance cost, including opportunity costs, as a percentage of the total funds available to the issuing firm?arrow_forward37. Golden fisheries LLC has a long history in the business world. They started their operation in 2001 and captured the whole market in few years. But then due to some economic problems the company stopped their operations. Now in 2018, the company again started functioning with a new name and business. The company has decided to issue new securities in the financial market to raise capital for its new business. Which of the following market can the company issue its shares? a.Secondary market b.Money market c.None of the options d.Bond marketarrow_forward
- Please answer this question step by step: * Prahm Corp. wants to raise $3.9 million via a rights offering. The company currently has 450,000 shares of common stock outstanding that sell for $40 per share. Its underwriter has set a subscription price of $15 per share and will charge the company a spread of 5 percent. If you currently own 3,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights?arrow_forwardConsider company Macrosoft, whose current stock price is 542. The board of directors of Macrosoft has decided to engage a spin-off. Each shareholder of Macrosoft will receive 3.50232 shares of Coco Colo, whose stock price is 8.34, for each share of Macrosoft owned. Consider an investor who currently owns 152 shares of Macrosoft. What is the amount of cash that this investor will receive after that spin-off? A) 4436.88 B) 2.941 C) 4439.821 D) 636.781arrow_forward(Multiple Choice) Kahula Corporation issues common shares for $7 each on the Shanghai Stock Exchange in 2005. At the end of 2021, the market value of those shares 1. Would be lower if they were converted to preferred shares 2. Could be any price, but would typically be lower than $7 3. Cannot be less than $7 4. Cannot be more than $7 5. Could be higher or lower than $7, depending on the performance of the company and the interaction between buyers and sellers of its sharesarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed...
Finance
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning