Ask Question
18 November, 10:23

Prahm Corp. wants to raise $5.3 million via a rights offering. The company currently has 590,000 shares of common stock outstanding that sell for $54 per share. Its underwriter has set a subscription price of $27 per share and will charge the company a spread of 6 percent. If you currently own 7,000 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

+2
Answers (1)
  1. 18 November, 12:14
    0
    Proceeds from sale of rights will be $49407.62

    Explanation:

    Proceeds from the sale of rights

    => Net Proceeds per share = Subscription price per share x (1 - Spread)

    = $27 * (1 - 0.06)

    = $25.38 per share

    => New shares offered = money raised/net proceeds per share

    = 5300000/25.38 = 208826 Shares

    => Number of rights needed = current shares/New share offered

    = 590000/208826 = 2.82532

    => The Ex-rights stock price will be

    Ex-rights stock price = ((Number of rights needed * selling price per share) + Subscription price) + (Number of rights needed + 1)

    = ((2.82532 * 54) + $27 per share) / (2.82532 + 1) = $46.94177 per share

    So, the value of a right = Selling price per share - Ex-rights stock price

    = $54 - $46.94177

    = $7.05823 per share

    Therefore, proceeds from selling the rights will be

    = Number of shares * value of a right

    = 7000 * 7.05823

    = $49407.62

    Proceeds from sale of rights will be $49407.62
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Prahm Corp. wants to raise $5.3 million via a rights offering. The company currently has 590,000 shares of common stock outstanding that ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers