Keira Mfg. is considering a rights offer. The company has determined that the ex
ID: 2651774 • Letter: K
Question
Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $95. The current price is $102 per share, and there are 24 million shares outstanding. The rights offer would raise a total of $60 million.
What is the subscription price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $95. The current price is $102 per share, and there are 24 million shares outstanding. The rights offer would raise a total of $60 million.
Explanation / Answer
Ex-rights number of shares (N) = Old shares outstanding/New shares outstanding
Ex Right Price per share $95.00 Current price per share $102.00 outstanding Shares 24 Million Total Right offer raised $60.00 Million Number of new shares = amount Raised/ Subscription price Number of new shares = $60,000,000/SPEx-rights number of shares (N) = Old shares outstanding/New shares outstanding
N = 24/($60/SP) $0.4000 N =0 .40SP Ex-rights stock price= ( N x Current Market Price + Subscription price)/(Ex right number of shares +1) solving for the subscription price, we get: $95 = (N x 102 + SP)/(N +1) $95 = (0.40SPx102 + SP)/(0.40SP + 1) $95 = (40.80SP + SP)/(.40SP + 1) $95 = $41.80SP/(1+ 0.40SP) $95 + 38SP = $41.80SP SP= $95/($41.80 - 38) = $25 Subscription price = $25Related Questions
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