You currently own 6 percent of the 2 million outstanding shares of Webster Mills

Question

You currently own 6 percent of the 2 million outstanding shares of Webster Mills. The company has just announced a rights offering with a subscription price of $50. One right will be issued for each share of outstanding stock. This offering will provide $18 million of new financing for the firm, ignoring all issue costs. Assume that all rights are exercised. What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

A. 5.08

B. 4.58

C. 4.83

D. 5.33

Explanation / Answer

current holding= 6%

current no. of shares= 2*6%=.12

new no. of shares issued =18/50=.36

total no. of shares become =2+.36=2.36 million

my holding in no. =.12 million

my holdinng in %=.12/2.36=.0508

or, 5.08%

A. 5.08

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