You are the CFO of a company that has a market capitalization of $20 billion. The firm has 50 million shares outstanding, so the shares are trading at $400 per share. You need to raise $1 billion and have announced a rights issue. Each existing shareholder is sent one right for every share he or she owns. You have not decided how many rights you will require to purchase a share of new stock. You will require either 16 rights to purchase one share at a price of $320 per share, or 30 rights to purchase two new shares at a price of $300 per share.

a)How much money is raised under 2 approaches?

b)What are the new stock prices after the issuance (under 2 approaches)

c)Will the existing shareholders exercise their rights to participate in the SEO? Justify your answer

d) What is the dollar value of one issuance right for a shareholder who owns a single share of stock

e) are the shareholders expected to be worse off with, better off with, or indifferent to the 2 approaches? Justify your answer

Answer rating: 100% (QA)

Lets address each part of the scenario a Money Raised Under Two Approaches Approach 1 16 rights to purchase one share at 320 Total amount raised per s... View the full answer