Question: Computer Graphics has announced a rights offering for its shareholders. Carol Stevens owns 1,400 shares of Computer Graphics stock. Four rights plus $54 cash are

Computer Graphics has announced a rights offering for its shareholders. Carol Stevens owns 1,400 shares of Computer Graphics stock. Four rights plus $54 cash are needed to buy one of the new shares. The stock is currently selling for $66 rights-on.

a. What is the value of a right?

b. How many of the new shares could Carol buy if she exercised all her rights? How much cash would this require?

c. Carol doesn’t know if she wants to exercise her rights or sell them. Would either alternative have a more positive effect on her wealth?

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