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?

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To find the number of rights needed to purchase a new share, use the formula: (Old shares * Old price) + (New shares * Subscription price) = (Total shares * New price). Here, 10,000 shares at $30 each means the company is worth $300,000. They want to raise $150,000 at $25 per share, so they will issue 6,000 new shares ($150,000 / $25). The total number of shares after the offering will be 16,000. The new price per share will be ($300,000 + $150,000) / 16,000 = $28.125. The number of rights needed is the old price divided by the difference between the old price and the subscription price: $30 / ($30 - $25) = 1.67.

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