SHOW ALL WORK Hickock, Inc., is proposing a rights offering. Presently there are

Question

SHOW ALL WORK

Hickock, Inc., is proposing a rights offering. Presently there are 200,000 shares outstanding at $74 each. There will be 50,000 new shares offered at $65 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

The new market Value of the company after rights issue:

a. 200,000 shares * $74 + 50,000 new shares * $65 = $ 14,800,000 + $ 3,250,000 = $18,050,000

b. Rights associated with one of the new shares = Number of existing shares/ new rights issue = 200000/50000 = 4 rights per new share.

c. The new price of the share(ex-rights price) would be the new market value of the share divided by total of previous shares and new issue

= $18,050,000 /(200000+50000) = $72.2 per share

d. Value of a right = Old price of the share minus new price of the share

= $74 - $72.2 = $1.8

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