Luther Industries currently has 100 million shares of stock outstanding at a price of $25 per share.The company would like to raise money and has announced a rights issue.Every existing shareholder will be sent one right per share of stock that he or she owns.The company plans to require twenty rights to purchase one share at a price of $20 per share.The amount of money that Luther will raise through its rights offering is closest to:

Question

Quizplus · Accepted Answer

To determine how much money the company will raise through the rights offering, we need to first calculate how many new shares will be issued. Each existing shareholder will receive one right for each share they own, meaning there will be 100 million rights issued. It takes twenty rights to purchase one share, so 100 million rights would be enough to purchase 5 million new shares (100 million / 20). Each new share will be sold at a price of $20, so the total amount of money raised will be 5 million shares x $20 per share = $100 million. Therefore, the correct answer is C.

Luther Industries Currently Has 100 Million Shares of Stock Outstanding