Question: Todd Winningham IV has $5,700 to invest. He has been looking at Gallagher Tennis Clubs Inc. common stock. Gallagher has issued a rights offering to its common stockholders. Four rights plus $68 cash will buy one new share. Gallagher's stock is selling for $84 ex-rights.
a-1. How many rights could Todd buy with his $5,700? (Do not round intermediate calculations and round your answer to the nearest whole number.)
Number of rights 1,425
a-2. Alternatively, how many shares of stock could he buy with the same $5,700 at $84 per share? (Do not round intermediate calculations and round your answer to the nearest whole number.)
Number of shares 68
b. If Todd invests his $5,700 in Gallagher rights and the price of Gallagher stock rises to $88 per share ex-rights, what would his dollar profit on the rights be? (First compute profit per right.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
Dollar profit $1,425
c. If Todd invests his $5,700 in Gallagher stock and the price of the stock rises to $88 per share ex-rights, what would his total dollar profit be? (Use the rounded number of shares from part a-2. Do not round any other intermediate calculations and round your answer to the nearest whole dollar.)
Total dollar profit $272
d. If Todd invests his $5,700 in Gallagher rights and the price of Gallagher's stock falls to $60 per share, ex-rights, what would his dollar profit on the rights be? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole dollar.)
Dollar profit/loss
e. If Todd invests his $5,700 in Gallagher stock and the price of Gallagher's stock falls to $60 per share ex-rights, what would be his total dollar profit? (Negative amount should be indicated by a minus sign. Use the rounded number of shares from part a-2. Do not round any other intermediate calculations and round your answer to the nearest whole dollar.)
Dollar profit/loss on the stock $(1,632)