The Wordsmith Corporation has 10,000 shares outstanding at €30 each.They expect to raise €150,000 by a rights offering with a subscription price of €25 how many rights must you turn in to get a new share?

Question

Quizplus · Accepted Answer

To calculate the number of rights required to get a new share, we need to use the following formula:

(Number of Rights Required) = (Total Amount Required)/(Subscription Price)

In this case, the Total Amount Required is €30, which is the current market price of the share. The subscription price is €25. Therefore,

(Number of Rights Required) = (30/25) = 1.20

So, to get a new share, you need to turn in 1.20 rights. However, since rights are not divisible, you need to either turn in 1 right and pay the difference in cash or turn in 2 rights and receive an additional share.

The Wordsmith Corporation Has 10,000 Shares Outstanding at €30 Each