The Purple Nickel is seeking to raise $8 million through a rights offering. Two rights will be required to purchase each new share of stock. Currently, there are 1.6 million shares outstanding at a market
Price of $12 per share. What is the ex-rights price?

Question

Quizplus · Accepted Answer

The total number of shares to be issued is $8 million / $12 per share = 666,667 shares 
Thus, the total number of rights issued will be 666,667 x 2 = 1,333,334 rights.

After the offering, the total number of shares outstanding will be 1.6 million + 666,667 = 2.266 million shares.

To find the ex-rights price, we need to divide the total market value of the shares by the total number of shares outstanding:

Market value before the offering = 1.6 million x $12 = $19.2 million 
Market value after the offering = 2.266 million x Ex-rights price

Since each right can be used to purchase a new share at the subscription price of $12, the total value raised by the offering is $8 million.

Thus, we can set up an equation:

($19.2 million + $8 million) / 2.266 million shares = Ex-rights price

Solving for Ex-rights price, we get:

Ex-rights price = $11.33

The Purple Nickel Is Seeking to Raise $8 Million Through