Question: Valuing a right Knight inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a

Valuing a right Knight inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $40. At the close of business the day before the ex-rights day, the company’s stock sells for $80 per share. The next morning, you notice that the stock sells for $72 per share and the rights sell for $6 each. Are the stock and the ex-rights correctly priced to create an immediate profit?

Step by Step Solution

★★★★★

3.43 Rating (162 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Using the equation for valuing a stock exright we find P X N... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

29-B-C-F-C-C (24).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

What best explains why Amazon would advertise price changes that amount to mere pennies? And, similarly, why would Amazon raise the price by 3000% on a single product? Amazon wants to convince each...

The Clifford Corp. has announced a rights offer to raise $28 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a...

The Clifford Corporation has announced a rights offer to raise $26 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a...

Problem 2 0 - 1 8 Valuing a Right Knight Inventory Systems, Incorporated, has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at...

see attachment below. High electricity costs have made farmer........ High electricity costs have made Farmer Corporation's chicken-plucking machine economically worthless. Only two machines are...

Problem 20-18 Valuing a Right Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take five rights to buy a new share in the offering at a subscription...

Valuing a Right Mitsi Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $40....

Just need the value of a right. Knight Inventory Systems Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a...

Problem 15-15 Valuing a Right [LO4] Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a...

Use an effective annual interest rate of 5%. A. Create a single cash flow table for the three projects described below (5,5, and 10 years, respectively). Also include 10 year cash flows for A and B....

What are the advantages and disadvantages of online focus group interviews compared to offline group interviews? How are focus group participants recruited and what are the common difficulties...

Questions 1 0 0 0 pts / 2 0 0 0 Hide Question 1 1 of 2 0 question. rect attempts. s late for a daily he total score. dback on each External wealth can increase by all of the following, EXCEPT:...

Find the center of mass of a uniform wire that subtends an arc θ if the radius of the circular arc is a, as shown in Figure 9-A DIN

Purchases by Deferred Payment, Lump-Sum, and Nonmonetary Exchanges Klamath Company, a manufacturer of ballet shoes, is experiencing a period of sustained growth. In an effort to expand its production...

The feed to a distillation column is a 45.0 mole% n-pentane.-55.0 mole% n-hexane liquid mixture. The vapor stream leaving the top of the column, which contains 98.0 mole% pentane and the balance...

Environmental Landscaping Inc. is preparing its budget for the first quarter of 2010. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To...

Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Hrubec Products...

What determines the severity of a shock? Can you say that a certain voltage is hazardous without further information?

Calculate the annual cash flows for each of the following investments: a. $250,000 invested at 6 percent. b. $50,000 invested at 12 percent. c. $100,000 invested at 10 percent.

Raj Krishnan bought a Honda Civic for $17,345. He put down $6,000 and financed the rest through the dealer at an APR of 4.9 percent for four years. What is the effective annual interest rate (EAR) if...

Cyclone Rentals borrowed $15,550 from a bank for three years. If the quoted rate (APR) is 6.75 percent, and the compounding is daily, what is the effective annual interest rate (EAR)?

Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $66,000 and you plan to spend all of it. However, you...

Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are anticipated as follows: March 3,600 April 7,600 May 12,200 June 10,200...

help please 10. [-/4.08 Points] DETAILS BBUNDERSTAT12 8.4.010.S. MY NOTES ASK YOUR TEACHER In this problem, assume that the distribution of differences is approximately normal. Note: For degrees of...