You currently own 11 percent of the 2.8 million outstanding shares of Webster Mills. The company has just announced a $3.2 million rights offering with a subscription price of $25 per share with one right issued for each share of stock. Assume that all rights are exercised. What will be your new ownership position if you opt to sell your rights rather than exercise them?

Question

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By selling your rights instead of exercising them, your ownership percentage in the company will decrease because new shares will be issued to those who exercise their rights, diluting your existing ownership percentage. Initially, you own 11% of 2.8 million shares, which equals 308,000 shares. The $3.2 million rights offering at $25 per share means 128,000 new shares will be issued ($3,200,000 / $25 = 128,000). After the rights offering, the total number of shares will be 2,928,000 (2,800,000 + 128,000). Your ownership will then be 308,000 / 2,928,000 = 10.52%.

You Currently Own 11 Percent of the 2