S&S wants to raise $11.3 million through a rights offering with a subscription price of $15 a share. The company has 1.24 million shares outstanding and a market price of $17.50 a share. Each shareholder will receive one right for each share of stock owned. How many rights will be needed to purchase one new share of stock in this offering?

Question

Quizplus · Accepted Answer

The total amount the company wants to raise is $11.3 million. To calculate the number of new shares it will issue, divide the amount to be raised by the subscription price per share:

$11.3 million / $15 = 753,333.33 new shares

This means there will be 1.24 million + 753,333.33 = 1.9933 million shares outstanding after the rights offering.

To determine how many rights will be needed to purchase one new share, divide the total number of rights by the number of new shares:

1 right per existing share × 1.24 million existing shares = 1.24 million rights

Total number of shares after the offering / number of new shares per right =

1.9933 million / 1.24 million = 1.605

So it will take approximately 1.605 rights to purchase one new share. Rounded to two decimal places, the answer is 1.65. Therefore, the correct answer is C.

S&S Wants to Raise $11