When the rights issue is successful, how much money would be raised. Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

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Answer 1

Question

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

b.

Summary Introduction

To determine: The share price after the rights issue.

c.

Summary Introduction

To determine: The amount raised from the new plan.

d.

Summary Introduction

To determine: The share price after the rights issue.

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

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Fishwick Enterprises has 201,500 shares outstanding, half of which are owned by Jennifer Fishwick and half by her cousin. The two cousins have decided to sell 101,000 shares in an IPO. Half of these shares would be issued by the company to raise new cash, and half would be shares that are currently held by Jennifer Fishwick. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day’s trading. Suppose also that investors would have been prepared to buy the issue at $80. a. Percentage of ownership 20 % b. Stock value $4,020,000 c. Number of shares 63,125 d. Total wealth ?? million e. Cost of underpricing shares ?? million

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?

You are the CFO of a company that has a market capitalization of $20 billion. The firm has 50 million shares outstanding, so the shares are trading at $400 per share. You need to raise $1 billion and have announced a rights issue. Each existing shareholder is sent one right for every share he or she owns. You have not decided how many rights you will require to purchase a share of new stock. You will require either 16 rights to purchase one share at a price of $320 per share, or 30 rights to purchase two new shares at a price of $300 per share. a)How much money is raised under 2 approaches? b)What are the new stock prices after the issuance (under 2 approaches) c)Will the existing shareholders exercise their rights to participate in the SEO? Justify your answer d) What is the dollar value of one issuance right for a shareholder who owns a single share of stock e) are the shareholders expected to be worse off with, better off with, or indifferent to the 2 approaches? Justify your answer

Answer 2

Question

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

b.

Summary Introduction

To determine: The share price after the rights issue.

c.

Summary Introduction

To determine: The amount raised from the new plan.

d.

Summary Introduction

To determine: The share price after the rights issue.

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 3

Question

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

b.

Summary Introduction

To determine: The share price after the rights issue.

c.

Summary Introduction

To determine: The amount raised from the new plan.

d.

Summary Introduction

To determine: The share price after the rights issue.

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Expert Solution & Answer

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Answer 4

Question

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

b.

Summary Introduction

To determine: The share price after the rights issue.

c.

Summary Introduction

To determine: The amount raised from the new plan.

d.

Summary Introduction

To determine: The share price after the rights issue.

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Expert Solution & Answer

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Answer 5

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

b.

Summary Introduction

To determine: The share price after the rights issue.

c.

Summary Introduction

To determine: The amount raised from the new plan.

d.

Summary Introduction

To determine: The share price after the rights issue.

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Answer 6

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

Answer 7

Chapter 23, Problem 20P

a.

Summary Introduction

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

Answer 8

b.

Summary Introduction

To determine: The share price after the rights issue.

Answer 9

b.

Summary Introduction

To determine: The share price after the rights issue.

Answer 10

c.

Summary Introduction

To determine: The amount raised from the new plan.

Answer 11

c.

Summary Introduction

To determine: The amount raised from the new plan.

Answer 12

d.

Summary Introduction

To determine: The share price after the rights issue.

Answer 13

d.

Summary Introduction

To determine: The share price after the rights issue.

Answer 14

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Answer 15

e.

Summary Introduction

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Answer 16

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Answer 17

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Answer 18

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Answer 19

Ch. 23.1 - Prob. 1CC Ch. 23.1 - Prob. 2CC Ch. 23.2 - Prob. 1CC Ch. 23.2 - Prob. 2CC Ch. 23.3 - List and discuss four characteristics about IPOs...Ch. 23.3 - Prob. 2CC Ch. 23.4 - Prob. 1CC Ch. 23.4 - What is the average stock price reaction to an...Ch. 23 - Prob. 1P Ch. 23 - What are the advantages and the disadvantages to a...

When the rights issue is successful, how much money would be raised. Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

Solution Summary: The author explains the formula used for the calculation of money raised when the rights issue is successful.

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

To determine: The share price after the rights issue.

To determine: The amount raised from the new plan.

To determine: The share price after the rights issue.

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Want to see the full answer?

Chapter 23 Solutions

When the rights issue is successful, how much money would be raised. Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

Solution Summary: The author explains the formula used for the calculation of money raised when the rights issue is successful.

To determine: When the rights issue is successful, how much money would be raised. Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.

To determine: The share price after the rights issue.

To determine: The amount raised from the new plan.

To determine: The share price after the rights issue.

To find: The plan which is better for the firm shareholder and the plan which is more likely to raise the full amount of capital.

Want to see the full answer?

Chapter 23 Solutions

To determine: When the rights issue is successful, how much money would be raised.

Introduction: Initial public offering (IPO) occurs when the company sells their share publically on the open market for the first time.