A rights offer was set at four rights plus $25 for each new share.What is the rights-on price if the ex-rights price is $30?

Question

Quizplus · Accepted Answer

To find the rights-on price, we need to determine the theoretical ex-rights price, which is the price at which the stock would trade if the rights were exercised and the new shares were issued.

Since the rights offer is set at 4 rights plus $25 for each new share, we can calculate the theoretical ex-rights price as follows:

[(4 x $25) + ($30 x 1)] / (4 + 1) = ($100 + $30) / 5 = $26

This means that if the rights were exercised, the new shares would be issued at a price of $26. To find the rights-on price, we need to add the subscription price ($25) to the theoretical ex-rights price:

$26 + $25 = $51

Therefore, the answer is D) $31.25.

A Rights Offer Was Set at Four Rights Plus $25