T.J. Warehouses wants to raise $22 million through a rights offering. The subscription price is set at $44. Currently, the company has 4.5 million shares outstanding with a current market price of $48 a share. Each shareholder will receive one right for each share of stock they currently own. How many rights will be needed to purchase one new share of stock in this offering?

Question

Quizplus · Accepted Answer

To find out how many rights are needed to purchase one new share, first, calculate the number of new shares to be issued. This is done by dividing the total amount to be raised ($22 million) by the subscription price per share ($44). This gives 500,000 new shares. Then, divide the total number of existing shares (4.5 million) by the new shares to be issued (500,000), which gives 9. Therefore, 9 rights are needed to purchase one new share.

TJ Warehouses Wants to Raise $22 Million Through a Rights