Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take five rights to buy a new share in the offering at a subscription price of $25. At the close of business the day before the ex-rights day, the company’s stock sells for $55 per share. The next morning, you notice that the stock sells for $45 per share and the rights sell for $3 each.
What is the value of the stock ex-rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock ex-rights $
What is the value of a right?
Are the rights underpriced or overpriced?
What is the amount of immediate profit you can make on ex-rights day per share?
Immediate profit $