A Hamilton 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 value of a
Right?

Question

Quizplus · Accepted Answer

To find the value of a right, use the formula: (Market Price - Subscription Price) / (Number of Rights Needed to Buy One Share + 1). Here, the number of rights needed is 800,000 shares / (16,000,000 / 100) = 5. Therefore, the value of a right is ($120 - $100) / (5 + 1) = $3.33.

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