moodle2.gla.ac.uk ! e.phoy13 Google Chegg Study Guided Solutions 1.1 Discuss the
ID: 2800306 • Letter: M
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moodle2.gla.ac.uk ! e.phoy13 Google Chegg Study Guided Solutions 1.1 Discuss the empirical evidence on the short-run and long-run stock price behaviour, and critically evaluate relevant theories that explain the pricing for Initial Public Offerings (IPOs) (10%) 1.2 Capita Inc. is proposing a rights offering. There are 200,000 shares outstanding trading at $25 each. There will be 10,000 new shares issued at a $20 subscription price. Calculate the new market value of the firm, the ex-rights price (Px), and the value of a right. (20%) 1.3 The shareholder equity accounts for Tokofu Inc. are shown here Ordinary shares (1 par 10,000 value) Additional paid in capital Retained earnings 280,000 586,500 Total owners' equity 876,500 Tokofu shares currently sell for 25 per share, and a 25 per cent stock dividend is declared Calculate the number of new shares to be distributed and show how the equity accounts would change.Explanation / Answer
1.2
Current Market value of equity = 200,000 × $25
= $5,000,000
Current Market value of equity is $5,000,000.
Subscription price of right = $20.
Number of new stock issue = 10,000
Market value after right issue = $5,000,000 + (10,000 × $20)
= $5,200,000.
Number of stock after issue = 210,000
Ex right Price = $5,200,000 / 210,000
= $24.76.
Ex right price of equity is $24.76.
Value of each right = ($25 - $20) / (200,000 / 10,000)
= $5 / 20
= $0.25.
Value of each right is $0.25.
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