moodle2.gla.ac.uk ! University of Glasgow e.phoy13 Google Chegg Study Guided Sol

Question

moodle2.gla.ac.uk ! University of Glasgow e.phoy13 Google Chegg Study Guided Solutions moodle2.gla b. Shangri-La 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 i) What is the new market value of the firm? i) What is the ex-rights price (Px)? (15 MARKS) (15 MARKS) ii)What is the value of a right? (15 MARKS) c. The shareholder equity accounts for Brentano International 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 Brentano shares currently sell for 25 per share, and a 25 per cent stock dividend is declared i) How many new shares will be distributed? (15 MARKs) i) Show how the equity accounts would change

Explanation / Answer

Question (b) b (i) What is the New market Value of the Firm New market Value of the firm =market Value of the existing sahares + Proceeds from rights issue =200,000*$25 +10000*$20 =$5000,000+$200,000 =$5,200,000 b(ii) What is the ex right price ? Ex right Price of share =market Value of the existing sahares + Proceeds from rights issue / Number of shares after rights issue   =$5,200,000/(200,000+10000) =$24.76 (b (iii) What is the Value of the right Value of a right = Market Vlue of a share before issue- Procceds from issue of a share =$25 -$20 =$5

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