C) KLM Inc. has decided on a rights offering to raise $40 million for new equipment...
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C) KLM Inc. has decided on a rights offering to raise $40 million for new equipment and working capital. The current market price per share before the offering was $11, the subscription price was set at $8, and KLM has 10 million shares outstanding. a) Determine the number of new shares KLM would have to issue and the number of rights required to purchase each of these new shares. b) Determine the value of the right and the rights-off price (also called ex-rights price) of a share. c) After announcing the offering, you receive a call from an irate shareholder who owns 10,000 shares of stock. The shareholder believes a personal loss will be suffered because KLM decided to issue additional shares at a price substantially below the current market value. To convince this shareholder otherwise, you promise to send a statement showing the effects of a rights offering on shareholder wealth. Show your calculation to prepare such a statement. C) KLM Inc. has decided on a rights offering to raise $40 million for new equipment and working capital. The current market price per share before the offering was $11, the subscription price was set at $8, and KLM has 10 million shares outstanding. a) Determine the number of new shares KLM would have to issue and the number of rights required to purchase each of these new shares. b) Determine the value of the right and the rights-off price (also called ex-rights price) of a share. c) After announcing the offering, you receive a call from an irate shareholder who owns 10,000 shares of stock. The shareholder believes a personal loss will be suffered because KLM decided to issue additional shares at a price substantially below the current market value. To convince this shareholder otherwise, you promise to send a statement showing the effects of a rights offering on shareholder wealth. Show your calculation to prepare such a statement.
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Answer rating: 100% (QA)
a To determine the number of new shares KLM would have to issue divide the total amount to be raised 40 million by the subscription price per share 8 ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
Posted Date:
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