The Overland Corporation intends to issue 50,000 new shares to raise funds for expansion of current plant facilities.The current share price is €40 and there are 500,000 shares outstanding.
The number of rights needed to buy a share should be:

Question

Quizplus · Accepted Answer

To raise funds for expansion, the company plans to issue 50,000 new shares. To do this, the company will need to sell the new shares to its existing shareholders first. This is typically done by offering the shareholders the right to buy a certain number of new shares at a discounted price compared to the market price.

The number of rights needed to buy a share can be calculated as follows:

Number of new shares issued / Number of existing shares + 1 = Number of rights needed to buy a share

In this case, the calculation would be:

50,000 / 500,000 + 1 = 0.1

Therefore, each existing shareholder will need 0.1 rights to buy one new share. Since rights cannot be divided, the closest option is B)10. Each shareholder will need 10 rights to buy one new share.

The Overland Corporation Intends to Issue 50,000 New Shares to Raise