Keira Mfg. is considering a rights offer. The company has determined that the ex
ID: 2646266 • Letter: K
Question
Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $66. The current price is $80 per share, and there are 42 million shares outstanding. The rights offer would raise a total of $70 million.
What is the subscription price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $66. The current price is $80 per share, and there are 42 million shares outstanding. The rights offer would raise a total of $70 million.
Explanation / Answer
Given:
Ex-right price = $66
Current share price = $80
Total shares outstanding = 42 million
Rights offer would raise to = $70 million
Solution:
Total worth of the firm = total shares * share price
= 42 million * $80
= $3,360 million
After the rights offerings,
Total worth = $3,360million + $70million
= $3,430 million
Total no. of shares after offering = total worth / ex-rights price
= $3,430 million / $66
= 51.969 million shares outstanding
Additional no. of shares raised = (51.969 - 42) million shares
= 9.969 million shares
Hence,
Subscription price = total raise by rights offering / additional shares raised
= $70 million / 9.969 million shares
= $7.02
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