Why is Common Stock Non-rights go with this question? Mistral Yachts: Mistral Ya

Question

Why is Common Stock Non-rights go with this question?

Mistral Yachts: Mistral Yachts is closely held company that was founded in 1970 by Gal Billow to build a top-quality line of sailboats. The company's debt ratio is 48 percent, compared with an average ratio of 36 percent for sailboat companies in general. The stock is owned in dual parts by ten individuals, none of whom is in a position to put additional funds into the business. Sales for the most recent year were $12 million, and earnings after taxes amounted to $720,000. Total assets, as of the latest balance sheet, were $9.6 million, Mistral Yachts needs an additional $4 million to finance expansion during the current fiscal year. Given the worldwide growth in leisure-time activities and interest in sailing in particular, the firm anticipates additional outside capital needs in the years ahead.

Explanation / Answer

Since company already has debt ration in excess of industry benchmark therefore it has to go for equity raise but since existing investors are not willing to invest any extra money therefore right issue is not possible. Accordingly company has to go for equity raising through common stock non - rights basis.

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