Your company has 100 million shares outstanding and the current share price of $12 per share. Your firm will have a rights offer which requires 10 rights to buy a share at the price of $10 per share.
a) What will be the new share price after the rights offer is completed if there is 100% participation?
b) What will be the new share price after the rights offer is completed if there is 80% participation?
c) Calculate the total amount you will have invested in the firm if you participate in the rights offer and you have 20 shares
d) Calculate the total new value of your portfolio if you participate and 100% of shares holders do as well
e) Calculate the total new value of your portfolio if you participate and 80% of shares holders do as well
f) Calculate the total new value of your portfolio if you don’t participate but 100% of shares holders do participate.(use the price from if 100% participate)
g) Calculate the total new value of your portfolio if you don’t participate and 80% of shares holders do participate.
h) If some are concerned that the price of $10 per share will not encourage participation in a rights offer what price would encourage greater participation?
i) What advantage does a rights offer have over a cash offer to issue new shares?