As a financial analyst at JPMorgan Chase, you are analyzing the rights offering for BMI Corporation. The company announced rights issue to build up more capital vie a 1 for 5 rights offer at $5 per share. Before the rights issues there were 20 million shares outstanding and the share price was $20. (Suppose 100% subscription for the rights offering).

a. How many new shares will be issued? (sample answer: 1.5m or 1500000)

b. What was the total amount of new money raised? (sample answer: $50.45m)

c. What was the value of the right to buy one new share? (sample answer: $15.50)

d. What was the prospective stock price after the rights issue? (sample answer: $15.50)

Answer rating: 100% (QA)

a To determine the number of new shares that will be issued we can use the formula Number of new sha... View the full answer