Roth Corp. wants to raise $3.3 million via a rights offering. The company curren
ID: 2650375 • Letter: R
Question
Roth Corp. wants to raise $3.3 million via a rights offering. The company currently has 430,000 shares of common stock outstanding that sell for $35 per share. Its underwriter has set a subscription price of $15 per share and will charge the company a spread of 6 percent.
If you currently own 3,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Roth Corp. wants to raise $3.3 million via a rights offering. The company currently has 430,000 shares of common stock outstanding that sell for $35 per share. Its underwriter has set a subscription price of $15 per share and will charge the company a spread of 6 percent.
Explanation / Answer
Net proceeds to firm = $15 (1 - 0.06) = $14.1
New shares offered = $3,300,000/$14.1 = 234,042.55
Number of rights needed per share = 430,000 / 234,042.55
Number of rights needed per share = 1.84
PEx = [$15 + 1.84($35)] / (1 + 1.84)
PEx = $27.95
Right value = $35 - $27.95
Right value = $7.05
Sale proceeds = $7.05 (3,000)
Sale proceeds = $21,150 (Approx)
Subscription price = $21,150 (Approx)
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