Problem:
WXYZ Co. has concluded that additional equity financing will be needed to expand operations, and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $50 to $45 ($50 is the rights-on price; $45 is the ex-rights price). The company is seeking $12.5 million in additional funds with a per share subscription price of $25.
Required:
Question: How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.
Note: Show all workings.