1.) Bowman, Inc., is proposing a rights offering. Presently there are 800,000 sh
ID: 2642507 • Letter: 1
Question
1.) Bowman, Inc., is proposing a rights offering. Presently there are 800,000 shares outstanding at $48 each. There will be 160,000 new shares offered at $40 each.
a.
What is the new market value of the company?
New market value
$44800000
b.
How many rights are associated with one of the new shares?
Number of rights needed______5__________
c.
What is the ex-rights price? (Round your answer to 2 decimal places. (e.g., 32.16))
Ex-rights price______________________
$
d.
What is the value of a right? (Round your answer to 2 decimal places. (e.g., 32.16))
Value of a right_____________________
$
I just need the answer to C and D
1.) Bowman, Inc., is proposing a rights offering. Presently there are 800,000 shares outstanding at $48 each. There will be 160,000 new shares offered at $40 each.
Explanation / Answer
a)
New Market Value of the Company will comprise of existing shares and new right shares issued by the company at their respective prices.
Market Value of the Company = Existing Shares*Market Price Per Share + Number of Right Shares*Offer Price = 800,000*48 + 160,000*40 = $44,800,000
_________________
b)
Number of rights associated with each old share will be calculated by dividing the total number of existing shares with the new right shares.
Number of Rights = Existing Shares/New Shares = 800,000/160,000 = 5 rights per new share
_________________
c)
Ex-rights price indicates the price of the stock after the issue of rights. It will be calculated by dividing the total market value (as calculated in part a) with the total number of shares after the rights issue.
The formula is:
Ex-Rights Price = Total Market Value/(Total Number of Shares)
_______________________
Solution:
Total Number of Shares = Existing Shares + New Shares After Rights Issue = 800,000 + 160,000 = 960,000
Ex-Rights Price = 44,800,000/960,000 = $46.67
_________________
d) The difference between the price before rights issue and after right issue (as calculate in part c) is the "Value of the Right".
The formula is :
Value of the Right = Current Price (Before Rights Price) - Ex-rights Price
_______________________
Solution:
Value of the Right = $48 - $46.67 = $1.33
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