A.

Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $37 to $34.20 ($37 is the rights-on price; $34.20 is the ex-rights price, also known as the when-issued price). The company is seeking $16 million in additional funds with a per-share subscription price equal to $20.

How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.) (Do not round intermediate calculations and round your answer to nearest whole number, e.g., 32.)

B.

The Woods Co. and the Speith Co. have both announced IPOs at $50 per share. One of these is undervalued by $9, and the other is overvalued by $2, but you have no way of knowing which is which. You plan to buy 400 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.

a.	If you could get 400 shares in Woods and 400 shares in Speith, what would your profit be? (Do not round intermediate calculations.)
b.	What profit do you actually expect? (Do not round intermediate calculations.)