The Shields Corporation intends to issue 100,000 new shares to raise funds for expansion of current plant facilities. The current share price is $20 and there are 500,000 shares outstanding. The number of rights needed to buy a share of stock should be:

Question

Quizplus · Accepted Answer

To issue 100,000 new shares, Shields Corporation needs to offer them to existing shareholders through a rights offering. The number of rights needed to buy a share of stock can be calculated using the formula:

(Number of existing shares * current share price) / Number of new shares

Plugging in the given values:

(500,000 * $20) / 100,000 = 5

Therefore, each shareholder will need 5 rights to buy one new share. Choice B is the closest option.

The Shields Corporation Intends to Issue 100,000 New Shares to Raise