TOYSrYOU needs to raise $5 million in a rights offering. If the subscription price is $10 per share, the stock price is $12.50 per share, and there are 4 million shares outstanding, how many rights are required to purchase one of the new shares?

Question

Quizplus · Accepted Answer

The number of new shares to be issued can be calculated as the total amount needed ($5 million) divided by the subscription price ($10), which equals 500,000 shares. The ratio of old shares to new shares is 4 million to 500,000, or 8 to 1. Therefore, 8 rights are required to purchase one new share.

TOYSrYOU Needs to Raise $5 Million in a Rights Offering