Tianyi Xie Aerospace Inc. has 1,000,000 outstanding shares, trading at $25 each. To finance its growth plan and prevent dilution of existing shareholders, Tianyi Xie Aerospace Inc. decides to raise $2 million at $16 per share. 

A. What is the (theoretical) price of one right?

B. You own 100 shares of Tianyi Xie Aerospace Inc. Calculate your wealth -after the rights offering-, if you decide to exercise your rights and buy new shares (i.e. using your rights)?

C. Calculate your wealth of -after the rights offering-, if you decide not to exercise your rights (i.e. you sell your rights on the exchange)?

D.   What can you conclude?

Answer rating: 100% (QA)

A To calculate the theoretical price of one right we need to first find the number of rights require... View the full answer