Bradley Power wants to raise $40 million in new equity. The subscription price is $25. There are currently 5 million shares outstanding,each with 1 right. How many rights are needed to purchase 1 share?

Question

Quizplus · Accepted Answer

To raise $40 million, the company needs to sell $40 million ÷ $25 = 1,600,000 new shares. Each old share has 1 right, so the total number of rights is 5 million rights. Therefore, the number of rights needed to purchase 1 share is:
Total number of rights ÷ total number of shares = 5 million ÷ (5 million + 1,600,000) = 5 million ÷ 6,600,000 = 0.7576. 
To purchase 1 share, investors need to have at least 1 right, so they actually need to have 2 rights. However, since the answer choices only include integers, the closest one is 3.125, which is equal to 3 rights.

Bradley Power Wants to Raise $40 Million in New Equity