The Green Hornet wants to raise $25 million in a rights offering. The stock price is $48 a share, the subscription price is $40 a share, and there are 4 million shares outstanding. What is the value of one right?

Question

Quizplus · Accepted Answer

The value of one right can be calculated using the formula: Value of one right = (Market price - Subscription price) / (Number of old shares per right + 1). First, find the number of new shares to be issued: $25 million / $40 = 625,000 shares. Then, calculate the number of old shares per right: 4 million shares / 625,000 shares = 6.4. Now, plug the values into the formula: ($48 - $40) / (6.4 + 1) = $8 / 7.4 = $1.08.

The Green Hornet Wants to Raise $25 Million in a Rights