Ben and Jennie's wants to expand their operations into the cookie business. It needs $20 million to build a bakery and establish a distribution system. Currently, the firm has 1,300,000 shares of stock outstanding. The market price of the stock is $34 a share. Ben and Jennie's decides to raise the needed capital through a rights offering wherein every stockholder will receive one right for every share of stock they own. The subscription price will be $28. How many rights will be needed to purchase one new share of stock in this offering?

Question

Quizplus · Accepted Answer

To calculate the number of rights needed to purchase one new share, first, determine the total amount of money needed ($20 million) and the subscription price per share ($28). Then, calculate the number of new shares to be issued: $20,000,000 / $28 = 714,286 shares. Since there are 1,300,000 shares outstanding and each share gets one right, the total number of rights equals the number of shares outstanding. To find the number of rights needed per new share, divide the total number of shares by the number of new shares: 1,300,000 / 714,286 = 1.82 rights per new share.

Ben and Jennie's Wants to Expand Their Operations into the Cookie