Assume a company intend to raise 80,000,000 with right offering to current shareholders that allows for a ‘bargain purchase price of 40/share. There are 20,000,000 shares already outstanding. The current stock price is $50/ share.
1. How many shares will be issued?
2. How many rights will be needed to qualify to purchase a share at $40?
3. What will the company’s stock trade at (everything else equal) after the issue?
4. How much will each right trade for in the open market?