The Holyoke Corporation has 120,000 shares outstanding with a current market price of €8.10 per
share.The company needs to raise an additional €36,000 to ﬁnance new expenditures, and has
decided on a rights issue.The issue will allow current shareholders to purchase one additional
share for 20 rights at a subscription price of €6 per share.
If the ex-rights price were set at €7.90, would you as a potential new shareholder choose to buy
shares ex-rights or buy shares at the old price and exercise your rights?

Question

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The Answer of The Holyoke Corporation has 120,000 shares outstanding with a current market price of €8.10 per
share.The company needs to raise an additional €36,000 to ﬁnance new expenditures, and has
decided on a rights issue.The issue will allow current shareholders to purchase one additional
share for 20 rights at a subscription price of €6 per share.
If the ex-rights price were set at €7.90, would you as a potential new shareholder choose to buy
shares ex-rights or buy shares at the old price and exercise your rights?

The Holyoke Corporation Has 120,000 Shares Outstanding with a Current