Question: Micro-Electronics Corporation (MEC) has just announced that it will issue 10 million shares of common stock through a rights issue at a subscription price of

Micro-Electronics Corporation (MEC) has just announced that it will issue 10 million shares of common stock through a rights issue at a subscription price of $20.

Before the announcement, MEC shares were trading at $26, and there were 50 million shares outstanding.

• How many rights will MEC grant to its existing shareholders?

• How many rights will an investor need to buy one new share?

• What will happen to MEC's share price when the rights issue is announced?

• What should be the value of one right?

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