The Obama Corporation has 120,000 shares outstanding with a current market price of $8.10 per share. The company needs to raise additional $36,000 to finance new expenditures, and has decided on a rights issue. The issue will allow current shareholders to purchase one additional share for 20 rights at a subscription price of $6 per share.
If the Ex-Rights price were set at $7.90, would you, as a potential new shareholder, chose to buy shares ex-rights or buy shares at the old price ad exercise your rights?
a) Buysharesex-rights
b) Buy shares at old price and exercise her rights c) Be indifferent between the two strategies
d) Cannot be determined