Big Box retailing has a market capitalisation of $500 million and 2 million shares outstanding. In order to finance its growth, the management of Big Box plans to raise further capital through a rights issue. All shareholders will be issued ten rights to purchase ten shares at a price of $1.50 per share. How much money will this raise, if all shareholders exercise their rights?

Question

Quizplus · Accepted Answer

The total number of shares after the rights issue will be:
2,000,000 + (2,000,000 x 10) = 22,000,000 shares
The price per share is $1.50, so the total amount raised will be:
22,000,000 x $1.50 = $33,000,000
However, only 20 million shares will be issued, as the remaining 2 million shares will be issued to those who exercise their rights. Therefore, the total amount of money raised will be:
20,000,000 x $1.50 = $30,000,000
Thus, the best choice is B.

Big Box Retailing Has a Market Capitalisation of $500 Million