The Miller Brothers Co. wants to expand their operations into the blueberry business. They need $5 million to buy land and establish a distribution system. Currently, the firm has 1,100,000 shares of stock outstanding. The market price of the stock is $46.75 a share. The Miller Brothers Co. 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 $40. 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 of stock in this offering, first, determine how many new shares need to be issued to raise the $5 million. Divide the total amount needed ($5 million) by the subscription price per share ($40): $5,000,000 / $40 = 125,000 new shares. Then, calculate the number of rights needed per new share by dividing the total number of existing shares (1,100,000) by the number of new shares to be issued (125,000): 1,100,000 / 125,000 = 8.8 rights.