The following question requires the calculation of the firm\'s market interactio
ID: 2729151 • Letter: T
Question
The following question requires the calculation of the firm's market interactions through a rights offering provided to each shareholders and their maintained proportions of shares.Please show all work.
The firm Davis, Martin and Zanders, Inc. (DMZ)has announced that it will issue 10 million shares of common stock through a rights issue at a subscription price of $20. Before the announcement, DMZ shares were trading at $26, and there were 50 million shares outstanding.
A. How many rights will DMZ grant to its existing shareholders?
B. How many rights will it investor need to buy one DMZ share?
C. What will happen to DMZ's share price when the rights issue is announced?
D. What should be the value of one right? The following question requires the calculation of the firm's market interactions through a rights offering provided to each shareholders and their maintained proportions of shares.
Please show all work.
The firm Davis, Martin and Zanders, Inc. (DMZ)has announced that it will issue 10 million shares of common stock through a rights issue at a subscription price of $20. Before the announcement, DMZ shares were trading at $26, and there were 50 million shares outstanding.
A. How many rights will DMZ grant to its existing shareholders?
B. How many rights will it investor need to buy one DMZ share?
C. What will happen to DMZ's share price when the rights issue is announced?
D. What should be the value of one right?
Please show all work.
The firm Davis, Martin and Zanders, Inc. (DMZ)has announced that it will issue 10 million shares of common stock through a rights issue at a subscription price of $20. Before the announcement, DMZ shares were trading at $26, and there were 50 million shares outstanding.
A. How many rights will DMZ grant to its existing shareholders?
B. How many rights will it investor need to buy one DMZ share?
C. What will happen to DMZ's share price when the rights issue is announced?
D. What should be the value of one right?
Explanation / Answer
A. How many rights will DMZ grant to its existing shareholders?
Total rights given 50M
B. How many rights will it investor need to buy one DMZ share?
5 Rights for 1 share(50000000/10000000)
C. What will happen to DMZ's share price when the rights issue is announced?
It will fall down(due to dilution)
D. What should be the value of one right?
Value of one right = (26-20)/5 = $1.2
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