Keira Mfg. is considering a rights offer. The company has determined that the ex

Question

Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $79. The current price is $98 per share, and there are 20 million shares outstanding. The rights offer would raise a total of $50 million.

What is the subscription price?

Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $79. The current price is $98 per share, and there are 20 million shares outstanding. The rights offer would raise a total of $50 million.

Explanation / Answer

Let the rights price be x.
Total amount raised by righs issue = $50 mils
No of right shares issued = 50mils/x
Total shares outstanding = 20mils + 50mils/x
Price of total shares outstanding after sale = 79*(20mils + 50mils/x)
Price of shares outstanding before sale = 20mils * 98 = 1960mils

Theoretically, the price of shares outstanding before and after the sale+amount raised will be equal

thus, 1960 = 1580 + 3950/x + 50 = 1630 + 3950/X
3950/x = 1960-1630 = 330
x = 3950/330 = $11.97

Thus, the subscription price for rights issue is $11.97

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