The O. Bama Company plans to increase its equity capital by the issue of new shares (SEO) with a subscription ratio of 4:1 (one new shares for four old ones). The current price of the shares is $32, the issue price for the new shares is $25.
1. How many new shares will be issued if the number of current shares is 8 million?
2. Main share holder H. Illary (HI), who has 30% of all shares before the SEO, does not have any cash at the moment. As a consequence, she wants to purchase as many shares as possible by selling a fraction of her subscription rights. How many new shares can HI purchase without raising any new cash? You can assume that theoretical prices will hold in practice.