A Windsor ﬁrm has 800,000 shares outstanding at a market price of $120 a share. It wants to raise $16 million via a rights offering. The subscription price is $100 per share. What is the ex-rights price?

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To raise $16 million, the company needs to issue 160,000 new shares (16,000,000/100). Each old shareholder has the right to purchase 1 new share for every 10 shares owned. So, a shareholder with 100 shares can purchase 10 new shares at the subscription price of $100 per share. The total cost of purchasing 10 new shares is $1,000. However, the shareholder can also sell their right to purchase these new shares in the market. The theoretical value of each right is calculated as the difference between the ex-rights price and the subscription price per share. If X is the ex-rights price, then (X-100)*(10/11)=$120-X. Solving for X, we get X=$116.67. Therefore, the ex-rights price is $116.67.

A Windsor ﬁRm Has 800,000 Shares Outstanding at a Market