CyTykes Toys has 1000 shares that are the sole source of financing. CyTykes is considering investing in a remote control helicopter project that would cost $50,000 and has an NPV of $25,000
• If the current share price is $150, what is the new share price and market value of the firm if the project is financed with a new SEO for 500 shares at par value $100?
• What happens to current shareholders?
• What if instead of an SEO, CyTykes offers rights to existing shareholders? CyTykes allows each shareholder to buy 1 new share for every two shares they own at a price of $100. If all exercise their rights, what is the eventual price and value of the firm?