Question

Nemesis, Inc., has 144,000 shares of stock outstanding. Each share is worth $46, so the company’s market value of equity is $6,624,000. Suppose the firm issues 25,000 new shares at the following prices: $46, $43, and $38.

What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share?

Answer 1

Ex rights price = (Market value+new shares*issue price)/(existing shares+new shares)

1)

=(6624000+25000*46)/(144000+25000)=46

2)

=(6624000+25000*43)/(144000+25000)=45.56

3)

=(6624000+25000*38)/(144000+25000)=44.82