There are 10,000,000 shares outstanding of O'Connell Co.'s stock,which now sells for $50 per share.The company plans to raise $100 million as new equity by selling common stock.Since the preemptive right is in the corporate charter,rights will be used.Management has decided that the rights should be worth $1 each: Such a price would assure that most stockholders would either exercise or sell their rights rather than just letting them expire,yet a careless failure to use the rights would not impose too severe a hardship on anyone.What subscription price should O'Connell set for its offering to obtain the desired price of the rights,and what will be the ex-rights stock price (M_e),assuming the theoretical relationships hold? (Hint: N = Number of old shares/Number of new shares; Number of new shares = Dollars to be raised/Subscription price per share.)
$\begin{array}{lll} & \text { Sub Price } & \text { Ex-rights } \\\text { a. } & \$ 39.65 & \$ 42.50 \\\text { b. } & \$ 40.25 & \$ 43.50 \\\text { c. } & \$ 42.65 & \$ 47.50 \\\text { d. } & \$ 44.55 & \$ 49.00 \\\text { e. } & \$ 46.65 & \$ 50.00\end{array}$

Question

There are 10,000,000 shares outstanding of O'Connell Co.'s stock,which now sells for $50 per share.The company plans to raise $100 million as new equity by selling common stock.Since the preemptive right is in the corporate charter,rights will be used.Management has decided that the rights should be worth $1 each: Such a price would assure that most stockholders would either exercise or sell their rights rather than just letting them expire,yet a careless failure to use the rights would not impose too severe a hardship on anyone.What subscription price should O'Connell set for its offering to obtain the desired price of the rights,and what will be the ex-rights stock price (M_e),assuming the theoretical relationships hold? (Hint: N = Number of old shares/Number of new shares; Number of new shares = Dollars to be raised/Subscription price per share.)

\begin{array}{lll} & \text { Sub Price } & \text { Ex-rights } \\\text { a. } & \$ 39.65 & \$ 42.50 \\\text { b. } & \$ 40.25 & \$ 43.50 \\\text { c. } & \$ 42.65 & \$ 47.50 \\\text { d. } & \$ 44.55 & \$ 49.00 \\\text { e. } & \$ 46.65 & \$ 50.00\end{array}

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The Answer of There are 10,000,000 shares outstanding of O'Connell Co.'s stock,which now sells for $50 per share.The company plans to raise $100 million as new equity by selling common stock.Since the preemptive right is in the corporate charter,rights will be used.Management has decided that the rights should be worth $1 each: Such a price would assure that most stockholders would either exercise or sell their rights rather than just letting them expire,yet a careless failure to use the rights would not impose too severe a hardship on anyone.What subscription price should O'Connell set for its offering to obtain the desired price of the rights,and what will be the ex-rights stock price (M_e),assuming the theoretical relationships hold? (Hint: N = Number of old shares/Number of new shares; Number of new shares = Dollars to be raised/Subscription price per share.) $\begin{array}{lll} & \text { Sub Price } & \text { Ex-rights } \ \text { a. } & \$ 39.65 & \$ 42.50 \ \text { b. } & \$ 40.25 & \$ 43.50 \ \text { c. } & \$ 42.65 & \$ 47.50 \ \text { d. } & \$ 44.55 & \$ 49.00 \ \text { e. } & \$ 46.65 & \$ 50.00 \end{array}$

There Are 10,000,000 Shares Outstanding of O'Connell Co