Big Box retailing has a market capitalisation of $500 million and 2 million shares outstanding. In order to finance its growth, the management of Big Box plans to raise further capital through a rights issue. All shareholders will be issued ten rights to purchase ten shares at a price of $1.50 per share. How much money will this raise, if all shareholders exercise their rights?

Question

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Each shareholder has 10 rights to purchase 10 shares at $1.50 each. With 2 million shares outstanding, 20 million new shares can be issued (2 million shares x 10 rights). At $1.50 per share, this will raise $30 million (20 million shares x $1.50).

Big Box Retailing Has a Market Capitalisation of $500 Million