A rights offering

Question

A rights offering

Quizplus · Accepted Answer

A rights offering gives current shareholders the right to purchase additional shares of the company's stock at a discounted price. This creates a built-in market for the new securities, as current shareholders are likely to exercise their rights to purchase the discounted shares. This can be a cost-effective way for the firm to raise capital without going through the expensive process of underwriting and marketing a public offering. Therefore, Option A is the correct answer. Option B is incorrect because a rights offering may actually have lower distribution costs compared to a public offering. Option C is incorrect because the impact on shareholder's total valuation depends on the specific terms of the offering and the performance of the company. Option D is incorrect because a rights offering can be less expensive than other forms of capital raising.

A Rights Offering