Question

Todd Winningham IV has $6,500 to invest. He has been looking at Gallagher Tennis Clubs Inc. common stock. Gallagher has issued a rights offering to its common stockholders. Five rights plus $78 cash will buy one new share. Gallagher's stock is selling for $88 ex- rights 0-1. How many rights could Todd buy with his $6,500? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of rights a-2. Alternatively, how many shares of stock could he buy with the same $6,500 at $88 per share? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of shares

Answer 1

A B 1 a-1) One right value 2 Number of rights $ с D 2 =(88-78)/5 3,250 -6500/2 3 74 -6500/88 4 a-2) Number of shares 5 6 b) One right value 7 Dollar profit 8 $ 3.40 =(95-78)/5 $4,550 =C2*(C6-C1) Total dollar profit $ 518 -74*(95-88) 9 C) 10 11 d) One right value Dollar profit/loss $1.60 =(70-78)/5 $6,500 =C2*(0-2) 12 13 14 e) Dollar profit/loss on the stock -$1,332 -74*(70-88)

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