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You have been asked for advice on a rights offering by a

Question: You have been asked for advice on a rights offering by a firm with 10 million shares outstanding, trading at $ 50 per share. The firm needs to raise $ 100 million in new equity. Assuming that the rights subscription price is $ 25, answer the following questions:

a. How many rights would be needed to buy one share at the subscription price?

b. Assuming that all rights are subscribed to, what will the ex-rights price be?

c. Estimate the value per right.

d. If the price of a right were different (higher or lower) than the value estimated in (c), how would you exploit the difference?

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Finance Basics: You have been asked for advice on a rights offering by a

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