The New Word Corporation has 1,000,000 shares outstanding at $30/share. If the firm wishes to raise $13.5 million at a subscription price of $27/share, calculate the value of a right.
A) $1/right
B) $2/right
C) $3/right
D) None of the above

Question

Quizplus · Accepted Answer

The value of a right is calculated as (Current Share Price - Subscription Price) / (Number of Rights Needed to Buy One New Share + 1). Here, it is ($30 - $27) / (1,000,000 / (13,500,000 / 27) + 1) = $1/right.

The New Word Corporation Has 1,000,000 Shares Outstanding at $30/share