The Wordsmith Corporation has 40,000 shares outstanding with a market price of $25 each.The firm expects to raise $200,000 via a rights offering at a subscription price of $20.How many rights must be submitted to acquire one new share?

Question

Quizplus · Accepted Answer

The number of rights needed to acquire one new share is determined by dividing the total amount to be raised ($200,000) by the subscription price per share ($20), which gives the total number of new shares to be issued (10,000 shares). Then, divide the total number of outstanding shares (40,000) by the new shares to be issued (10,000) to find the number of rights needed for one new share, which is 4.

The Wordsmith Corporation Has 40,000 Shares Outstanding with a Market