Question: ABC Corp has decided to do a rights offering. It will issue 1 right for each share. The company currently has 10,000,000 shares outstanding. Therefore,

ABC Corp has decided to do a rights offering. It will issue 1 right for each share. The company currently has 10,000,000 shares outstanding. Therefore, there will be 10,000,000 rights. The stock price today is $50 per share. The company wishes to raise $100,000,000. The companys net income is $10,000,000. The company does not want earnings per share (EPS) to decline by more than 20%. What is the minimum subscription price that the company must set in the rights issue? How many rights will it take to buy 1 share at this minimum subscription price, and what is the value of one right at this minimum subscription price?

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