Jeff's is granting one right for each share of stock outstanding for its new rights offering. The new shares in this offering are priced at $16 plus four rights. The current market price of the stock is $20 a share. What is the value of one right?

Question

Quizplus · Accepted Answer

To find the value of one right, we first need to determine the price of the new shares. One share can be purchased for $16 plus four rights, or $16 + 4x, where x is the value of one right. We can also purchase one share on the open market for $20. Setting these two prices equal to each other, we get:

$16 + 4x = $20
4x = $4
x = $1

Therefore, each right is worth $1. The answer is B, $.80, which is not an answer choice.

Jeff's Is Granting One Right for Each Share of Stock