The market value of DC Wholesalers common stock is $17 a share. The company has decided to raise funds through a rights offering. Shareholders will receive one right for each share of stock they own. The new shares are priced at $15 plus four rights. What is the value of one right?

Question

Quizplus · Accepted Answer

The value of one right is calculated as the difference between the market value of the stock and the subscription price, divided by the number of rights required to purchase a new share plus one. Here, the market value is $17, the subscription price is $15, and it takes four rights to buy a new share. So, the value of one right is ($17 - $15) / (4 + 1) = $2 / 5 = $.40.

The Market Value of DC Wholesalers Common Stock Is $17