You, the head of Finance, work for an Investment Firm that owns shares of The New...

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You, the head of Finance, work for an Investment Firm that owns shares of The New Film Corporation (TNFC). The New Film Corp. has announced a rights offer to raise $90 million for a new movie, "Sherlock Holmes 2024". The stock currently sells for $35 per share, and there are 12 million shares outstanding. You are thinking about the impact this announcement could have on your firm. a. What is the maximum possible subscription price? What is the minimum? b. If the subscription price is set at $30 per share, how many shares must be sold? How many rights will it take to buy one share? c. What is the ex-rights price? What is the value of a right? d. Show how a shareholder with 1,000 shares before the offering and no desire (or money) to buy additional shares is not harmed by the rights offer. You, the head of Finance, work for an Investment Firm that owns shares of The New Film Corporation (TNFC). The New Film Corp. has announced a rights offer to raise $90 million for a new movie, "Sherlock Holmes 2024". The stock currently sells for $35 per share, and there are 12 million shares outstanding. You are thinking about the impact this announcement could have on your firm. a. What is the maximum possible subscription price? What is the minimum? b. If the subscription price is set at $30 per share, how many shares must be sold? How many rights will it take to buy one share? c. What is the ex-rights price? What is the value of a right? d. Show how a shareholder with 1,000 shares before the offering and no desire (or money) to buy additional shares is not harmed by the rights offer.

Answer rating: 100% (QA)

a The maximum possible subscription price can be determined by dividing the total amount to be raised 90 million by the number of shares to be issued In this case the number of shares to be issued can ... View the full answer