The Shoe Co. has determined that as a result of its rights offering, its share price fell from a rights-on price of $38.50 to an ex-rights price of $37.62 per share. The rights offer was for $8.05 million with a per-share subscription price of $35. How many shares of stock were outstanding before the offering?

Question

Quizplus · Accepted Answer

First, we need to calculate the number of new shares issued in the rights offering:
$8.05 million / $35 per share = 230,000 new shares
Next, we can use the formula:
Ex-Rights Price = (Rights-On Price x (Number of Shares Outstanding) + (Subscription Price x Number of New Shares Issued)) / Total Number of Shares
$37.62 = ($38.50 x N + $35 x 230,000) / (N + 230,000)
Solving for N, we get:
N = 684,773 shares outstanding before the offering.