a)
To find: The effect of alternative offering price on the current price of a share
Introduction:
The loss in the present shareholders value in the terms of earnings per share, market value, book value, and ownership is termed as dilution.
a)
Answer to Problem 8QP
- If the price of the share is $68, there is no change in the price of the ex-rights stock.
- If the price of the share is $65, there is a drop in price of the ex-rights stock.
- If the price of the share is $60, there is a drop in price of the ex-rights stock.
Explanation of Solution
Given information:
Company C has 175,000 outstanding shares. The worth of each share is $68, the firm’s market value of the equity is $11,900,000. The company issues 30,000 new shares for the following prices: $68, $65, and $60.
Compute the number of rights that are essential:
Hence, the number of rights needed is 5.83 rights per share.
Formula to calculate the price for a share of the stock ex-rights:
N is the number of rights needed,
The price of the share is $68:
Hence, there is no change in the price of the share.
b)
To find: The effect of alternative offering price on the current price of a share
Introduction:
The loss in the present shareholders value in the terms of earnings per share, market value, book value, and ownership is termed as dilution.
b)
Answer to Problem 8QP
- If the price of the share is $68, there is no change in the price of the ex-rights stock.
- If the price of the share is $65, there is a drop in price of the ex-rights stock.
- If the price of the share is $60, there is a drop in price of the ex-rights stock.
Explanation of Solution
Given information:
Company C has 175,000 outstanding shares. The worth of each share is $68, the firm’s market value of the equity is $11,900,000. The company issues 30,000 new shares for the following prices: $68, $65, and $60.
Compute the number of rights that are essential:
Hence, the number of rights needed is 5.83 rights per share.
Formula to calculate the price for a share of the stock ex-rights:
N is the number of rights needed,
The price of the share is $65:
Hence, there is a drop in the price by $0.44 per share.
c)
To find: The effect of alternative offering price on the current price of a share
Introduction:
The loss in the present shareholders value in the terms of earnings per share, market value, book value, and ownership is termed as dilution.
c)
Answer to Problem 8QP
- If the price of the share is $68, there is no change in the price of the ex-rights stock.
- If the price of the share is $65, there is a drop in price of the ex-rights stock.
- If the price of the share is $60, there is a drop in price of the ex-rights stock.
Explanation of Solution
Given information:
Company C has 175,000 outstanding shares. The worth of each share is $68, the firm’s market value of the equity is $11,900,000. The company issues 30,000 new shares for the following prices: $68, $65, and $60.
Compute the number of rights that are essential:
Hence, the number of rights needed is 5.83 rights per share.
Formula to calculate the price for a share of the stock ex-rights:
N is the number of rights needed,
The price of the share is $60:
Hence, there is a drop in the price by $1.17 per share.
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Chapter 15 Solutions
Fundamentals of Corporate Finance Standard Edition
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