The Smooth Sail Corporation intends to issue 50,000 new shares to raise funds for expansion of current plant facilities. The current share price is $40 and there are 500,000 shares outstanding. The number of rights needed to buy a share of stock should be:

Question

Quizplus · Accepted Answer

In a rights offering, current shareholders are given the opportunity to purchase new shares at a discounted price. The number of rights needed to buy a share of stock is calculated as follows: (total number of outstanding shares + new shares issued) / (number of new shares issued). 
In this case, the calculation would be (500,000 + 50,000) / 50,000 = 11. Therefore, shareholders would need 11 rights to purchase one new share of stock. Since the question asks for the number of shares needed, we round up to the nearest whole number, which is 10.

The Smooth Sail Corporation Intends to Issue 50,000 New Shares