What if we lived in a world in which modigliani miller is true, that is no information
Question:
What if we lived in a world in which modigliani miller is true, that is no information or tax issues and capital structure is irrelevant.
A company currently has 1,000 shares outstanding , each with a price of $200.
The firm announces a 1 for 5 (rights issue) of new stock, that is each stock holder would have the right to buy 1 stock for 5 stocks currently held. The price at which the new stock will be sold to existing shareholders will be $185.
Assume all shareholders act rationally in making their purchase decision, that is they purchase the rights stock if the price they will pay will be lower than the price of the stock after the rights issue is completed.
What will be the price of the stock be after the rights issue is completed?
Round the answer to two decimals.
Expert Answer:
In a ModiglianiMiller theorem world capital structure is irrelevant and a companys value depends onl... View the full answer
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
