The Wordsmith Corporation has 10,000 shares outstanding at €30 each.They expect to raise €150,000 by a rights offering with a subscription price of €25 how many rights must you turn in to
Get a new share?

Question

Quizplus · Accepted Answer

To calculate the number of rights required to purchase a new share, we need to divide the subscription price per share (€25) by the current market price per share (€30), and then round down to the nearest whole number. 
Thus, the number of rights required to purchase one new share = 25/30 = 0.8333
Rounding down to the nearest whole number, we get 0. Therefore, we need to turn in 1 right to get one new share.
To raise €150,000, they need to sell (150,000/25) = 6,000 new shares. 
Thus, the total number of rights required to purchase these 6,000 new shares = 6,000 x 0.8333 = 5,000
As there are 10,000 existing shares in the company, each shareholder will receive one right for each share they own. Therefore, the total number of rights issued = 10,000.
Hence, to get a new share, we must turn in 1.67 (= 5,000/10,000) rights. The correct answer is option C.

The Wordsmith Corporation Has 10,000 Shares Outstanding at €30 Each