Cherry Corporation sold $200,000 of 12% bonds at par. Each $1,000 bond carried ten warrants, each of which allows the holder to acquire one share of $10 par common stock for $30 per share. After issuance, the bonds were quoted at 99 ex rights, and the warrants were quoted at $4 each. Cherry Corporation should have assigned to the rights a value of

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The value assigned to the rights (warrants) can be calculated by multiplying the number of warrants by their quoted price. Since each $1,000 bond carried ten warrants, and there were $200,000 worth of bonds sold at par, there are 200 bonds in total (200,000 / 1,000). This means there are 2,000 warrants (200 bonds * 10 warrants/bond). At a quoted price of $4 each, the total value of the warrants is 2,000 * $4 = $8,000. However, since the bonds were quoted at 99 ex rights, implying a 1% discount due to the detachment of the warrants, the value of the bonds decreased by $2,000 (1% of $200,000). Therefore, the value assigned to the rights should be the total value of the warrants ($8,000) minus the decrease in bond value due to the detachment of the rights ($2,000), resulting in $6,000. However, this calculation does not match any of the provided options, indicating a misunderstanding in the explanation process. The correct approach involves recognizing the market's valuation of the warrants separately from the bond's par value, and the correct answer should reflect the market value of the warrants, which is directly given as $8,000 (200 bonds * 10 warrants/bond * $4 per warrant). The error in the initial explanation lies in incorrectly adjusting for the bond's market price post-rights detachment, which is not relevant to calculating the direct market value of the warrants. The correct answer, based on the direct calculation of the warrants' market value, should indeed be $8,000, but due to the error in explanation, the response does not align with the provided choices correctly. The correct methodology involves directly using the market quotes for the warrants without adjusting for the bond's price change, leading to a straightforward calculation based on the given information.

Cherry Corporation Sold $200,000 of 12% Bonds at Par