The present market price per share is $25 and the value of a right is $.50. The expected market price per share after the rights offering is

Question

Quizplus · Accepted Answer

The expected market price per share after the rights offering can be calculated as follows:

New shares issued = (Total value of rights offering) / (Subscription price per share)

Total value of rights offering = (Number of new shares issued) x (Subscription price per share)

Total value of rights offering = (0.4) x ($25) = $10

New shares issued = ($10) / ($20) = 0.5 shares

Total shares outstanding after rights offering = (Total shares outstanding) + (New shares issued)

Total shares outstanding after rights offering = (2) + (0.5) = 2.5 shares

Expected market price per share after rights offering = (Total value of company) / (Total shares outstanding after rights offering)

Total value of company = (Current market price per share) x (Total shares outstanding)

Total value of company = ($25) x (2) = $50

Expected market price per share after rights offering = ($50) / (2.5) = $20

Therefore, the expected market price per share after the rights offering is $20, which is option B.

The Present Market Price Per Share Is $25 and the Value