Question 15.S-TP.2: Rights Offerings The Hadron Corporation currently has 3 mill...
Rights Offerings The Hadron Corporation currently has 3 million shares outstanding. The stock sells for $40 per share. To raise $20 million for a new particle accelerator, the firm is considering a rights offering at $25 per share. What is the value of a right in this case? The ex-rights price?
To raise $20 million at $25 per share, $20 million/$25 = 800,000 shares will have to be sold. Before the offering, the firm is worth 3 million × $40 = $120 million. The issue will raise $20 million, and there will be 3.8 million shares outstanding. The price of an ex-rights share will therefore be $140 million/3.8 million = $36.84. The value of a right is thus $40 − 36.84 = $3.16.
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