Image Storage Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using a (North American)rights issue. If the current stock price is $50 and the subscription price is $47/share, what is the value of a right?
A)$0.40/right
B)$5.00/right
C)$2.50/right
D)$1.00/right

Question

Quizplus · Accepted Answer

The value of a right is calculated as (Current Stock Price - Subscription Price) / (Number of Rights Needed to Buy One New Share + 1). Here, it is ($50 - $47) / (2 + 1) = $1.00/right.

Image Storage Corporation Has 1,000,000 Shares Outstanding