Jan has $7,380 to invest in Barton Corporation\'s common stock. It has issued a

Question

Jan has $7,380 to invest in Barton Corporation's common stock. It has issued a rights offering to its common shareholders. It will cost 8 rights plus $50 cash to buy one new share. The company's stock will sell for $90 ex-rights. Please make sure your final answer(s) are accurate to the nearest whole number. a) How many rights could Jan buy with the $7,380? Alternatively, how many shares of stock could Jan buy with the same $7,380 at $90 per share? Number of Rights = Number of Shares- b) If Jan invests the entire $7,380 in Barton Corporation's rights, and the stock rises to $130 per share ex-rights, what would her dollar profit on the rights be? Suppose Jan had invested the money in Barton Corporation stock instead. What would her total dollar profit be with the same stock increase? Total Profit on Rights-S Total Profit on Shares S c) What would be the total dollar profit for Jan if the price of Barton Corporation's stock falls to $42 per share ex rights instead of rising to $130 Total Profit on Rights S Total Profit on Shares $

Explanation / Answer

8 rights + 50 = 90

1 right cost = 5

1)

Number of rights = 7380 / 5 = 1476

Number of shares = 7380 / 90 = 82

2)

Rights price = (130-50)/8 = 10

Rights profit = 1476*(10-5) = 7380

Stock profit = 82*(130-90) = 3280

3)

Rights price = (42-50)/8 = -1

Rights profit = 1476*(-1-5) = -8856 (Loss)

Stock profit = 82*(42-90) = -3936 (Loss)

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