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7 October, 18:54

The Wordsmith Corporation has 40,000 shares outstanding with a market price of $25 each. The firms expects to raise $200,000 via a rights offering at a subscription price of $20. How many rights must be submitted to acquire one new share

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Answers (2)
  1. 7 October, 20:29
    0
    4 rights will be submitted to obtain 1 share

    Explanation:

    Shares are issued by companies to raise capital for their operations. Outstanding shares are those that have been given out already and on which the company is obligated to pay dividends.

    Wordsmith corporation wants to raise $200,000 from new shares at $20 each. They had 40,000 shares outstanding initially.

    Number of new shares = 200,000/20 = 10,000

    Therefore

    Number of rights that is needed on existing shares = 40,000/10,000 = 4
  2. 7 October, 22:50
    0
    Five Rights for one new share

    Explanation:

    Oustanding Shares 40000

    Market Price 25

    Investment required 200000

    Market Price 200000 25 8000

    Exercise Price 200000 20 10000

    Benefit 2000

    20%

    Five Rights for one new share
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