Boondocks Inc. has 30 million shares outstanding at a price of $40 each. The company is planning a seasoned equity offering (SEO). It will issue an additional 10 million shares at a subscription price of $32. Adelheid is a shareholder of the firm and currently owns 900 shares (prior to the SEO). The SEO will be carried out as a rights offer.
a. How many rights will Adelheid receive from the firm in the process of the SEO?
b. How many new shares can she buy in the SEO with the rights that she has?
c. What will be the price of the company’s shares after the SEO?
d. Calculate Adelheid’s shareholder value if she exercises her rights.
e. Calculate Adelheid’s shareholder value if she chooses to sell her rights.