Jenna owns 600 shares of stock in the Digital Sound Company. Currently, there are 900,000 shares of stock outstanding. The company has just announced a rights offering whereby 300,000 shares
Are being offered for sale at a subscription price of $30 a share. The current stock price is $39 a
Share. Assume that Jenna sells her rights and that all rights are exercised. What will Jenna's
Ownership percentage in the Digital Sound Company be after the rights are exercised?

Question

Quizplus · Accepted Answer

Before the rights offering, Jenna owns 600/900,000 or 0.0006667 (0.067%) of the company.

After the rights offering, there will be 1,200,000 shares outstanding (900,000 existing shares + 300,000 newly issued shares from the rights offering). If Jenna sold her rights, she would receive $9,000 (300,000 shares x $30 per share).

Assuming all the rights are exercised, there will be an additional 300,000 shares issued at $30 per share, bringing in $9,000,000 to the company. After the new shares are issued, the total shares outstanding would be 1,200,000.

If all of the rights were exercised, Jenna could purchase 600 new shares for $18,000 ($30 per share x 600 shares). Her ownership percentage after the rights are exercised would be:

(600 + 600) / 1,200,000 = 0.001 (0.1%)

So, Jenna's ownership percentage in the Digital Sound Company after the rights are exercised would be 0.1%, or 0.0500 as a percentage. Therefore, the correct answer is C.

Jenna Owns 600 Shares of Stock in the Digital Sound