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

Luther has 100 million outstanding shares and will issue one right per share. This means that they will issue 100 million rights.

It takes 20 rights to purchase one share at a price of $20 per share, meaning that the total cost to exercise the right is $400 ($20 x 20).

Therefore, for every 100 million rights issued, Luther will raise $400 million.

If all shareholders exercise their rights, this means that 5 million new shares will be issued (100 million rights / 20 rights per share).

So, Luther will raise $400 million by issuing 5 million new shares.

Therefore, the correct answer is C) $100 million as this is the amount of money that Luther will raise through its rights offering.

Luther Industries Currently Has 100 Million Shares of Stock Outstanding