Question: Problem 1 En-Alta Pipelines has announced a rights offering for its shareholders. Dave owns 2,000 shares of En-Alta stock. 9 rights plus $40 are needed

Problem 1

En-Alta Pipelines has announced a rights offering for its shareholders. Dave owns 2,000 shares of En-Alta stock. 9 rights plus $40 are needed to buy one of the new shares. Prior to the announcement En-Alta shares were trading for $60 per share.

What is the value of a right?
How many shares could Dave buy if he exercised all of his rights?
What will the value of the rights be if the ex-rights price of the shares increases by 15%?

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