Question: You have been asked for advice on a rights offering by a firm with 10 million shares outstanding, trading at $ 50 per share. The firm needs to raise $ 100 million in new equity. Assuming that the rights subscription price is $ 25, answer the following questions:
a. How many rights would be needed to buy one share at the subscription price?
b. Assuming that all rights are subscribed to, what will the ex-rights price be?
c. Estimate the value per right.
d. If the price of a right were different (higher or lower) than the value estimated in (c), how would you exploit the difference?