Hickock, Inc., is proposing a rights offering. Presently there are 200,000 share

Question

Hickock, Inc., is proposing a rights offering. Presently there are 200,000 shares outstanding at $55 each. There will be 10,000 new shares offered at $50 each. a. What is the new market value of the company? (Do not round intermediate calculations.) New market value $ b. How many rights are associated with one of the new shares? (Do not round intermediate calculations.) Number of rights needed c. What is the ex-rights price? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Ex-rights price $ d. What is the value of a right? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Value of a right $

Explanation / Answer

a)The new market value will be =200,000 shares x $55 per share + 10,000 new shares x $50 per share $

=11,000,000+500,000

=$ 11,500,000

b) The number of rights associated with each old share is equal to the number of shares outstanding divided by the number of new shares

=200,000/10000= 20 rights per new share

c) The new price of the stock will be the new market value of the company divided by the total number of shares outstanding after the rights offer, which will be: =(200,000*55+10,000*50)/(200,000+10,000) =$ 54.76 per share

d) the value of a right =Price of the share before right issue -price of the share after right issue

=$ 55-$54.76 =$ 0.24 per share

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