In 2012, the Pandora Box Company made a rights issue at €9 a share of one new share for every four shares held. Before the issue there were 9.4 million shares outstanding and the share price was €10.
a. What was the total amount of new money raised?
b. The rights issue gave the shareholder the opportunity to buy one new share for less than the market price. What was the value of this opportunity per share owned?
c. What was the prospective stock price after the issue?
d. How far could the total value of the company fall before shareholders would be unwilling to take up their rights? Now suppose that the company had decided to issue the new stock at €8 instead of €9.
e. How many new shares would the firm have needed to sell to raise the same sum of money?
f. What would be the new value of the opportunity given to shareholders to buy one new share for less than the market price?
g. What would be the prospective stock price after the issue?
h. Now how far could the total value of the company fall before shareholders would be unwilling to take up their rights?