TOYSrYOU needs to raise $5 million in a rights offering. If the subscription price is $10 per share, the stock price is $12.50 per share, and there are 4 million shares outstanding, what will the stock sell for ex-rights?

Question

Quizplus · Accepted Answer

To find the ex-rights price, calculate the value of the rights offering. The company needs to raise $5 million at $10 per share, so they will issue 500,000 new shares ($5,000,000 / $10). The total number of shares after the offering will be 4,500,000 (4,000,000 existing + 500,000 new). The total value of the company before the offering is 4,000,000 shares * $12.50 = $50,000,000. After the offering, the total value is $50,000,000 + $5,000,000 = $55,000,000. The ex-rights price is $55,000,000 / 4,500,000 shares = $12.22.

TOYSrYOU Needs to Raise $5 Million in a Rights Offering