Eileen owns 27,000 shares of stock in the Film Production Company. Currently, there are 800,000 shares of stock outstanding. The company has just announced a rights offering whereby 100,000
Shares are being offered for sale at a subscription price of $20 a share. The current stock price is
$28 a share. Assume that Eileen sells her rights and that all rights are exercised. What will Eileen's
Ownership percentage in the Film Production Company be after the rights are exercised?

Question

Quizplus · Accepted Answer

Before the rights offering, Eileen owns 27,000/800,000 = 3.375% of the company.
During the rights offering, Eileen can purchase 27,000/800,000 x 100,000 = 3,375 shares.
In order to purchase these shares, Eileen needs to spend $20 x 3,375 = $67,500.
After the rights offering, there will be 800,000 + 100,000 = 900,000 shares outstanding.
If all 100,000 rights are exercised, there will be an additional 100,000/900,000 x $20 = $2.22 per share dilution.
Therefore, the new stock price will be $28 - $2.22 = $25.78 per share.
Eileen's total shares after the rights offering will be 27,000 + 3,375 = 30,375 shares.
Eileen's ownership percentage will be 30,375/900,000 = 3.375%.

Eileen Owns 27,000 Shares of Stock in the Film Production