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Walker Machine Tools has 5.6 million shares of common stock outstanding. The current market price of Walker common stock is $54 per share rights-on. The company’s net income this year is $18.00 million. A rights offering has been announced in which 560,000 new shares will be sold at $48.50 per share. The subscription price plus four rights is needed to buy one of the new shares.


a. What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering? (Do not round intermediate calculations and round your answers to 2 decimal places.)

EPS:

PER:


b. What would the earnings per share be immediately after the rights offering? What would the price-earnings ratio be immediately after the rights offering? (Assume there is no change in the market value of the stock, except for the change when the stock begins trading ex-rights.) (Do not round intermediate calculations and round your answers to 2 decimal places.)

EPS:

PER:

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Jamar Ferry
Jamar FerryLv2
28 Sep 2019

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Roth Corp. wants to raise $4.6 million via a rights offering. The company currently has 560,000 shares of common stock outstanding that sell for $70 per share. Its underwriter has set a subscription price of $40 per share and will charge the company a spread of 2 percent.

If you currently own 2,500 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
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The Clifford Corporation has announced a rights offer to raise $48 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a nonrefundable reviewing fee of $3,000 per page. The stock currently sells for $24 per share, and there are 3.6 million shares outstanding.
a.

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The maximum possible subscription price is $
The minimum price is anything greater than $
b.

If the subscription price is set at $20 per share, how many shares must be sold? How many rights will it take to buy one share? (Do not round intermediate calculations. Round your rights needed answer to 2 decimal places, e.g., 32.16.)
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What is the ex-rights price? What is the value of a right? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
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d.

A shareholder with 500 shares before the offering has no desire (or money) to buy additional shares offered as rights. What is his portfolio value before and after the rights offer? (Do not round intermediate calculations and round your final answers to nearest whole number, e.g., 32.)
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The Crandall Corporation currently has 100,000 shares outstanding that are selling at $50 per share. It needs to raise $900,000. Net income after taxes is $500,000. Its vice-president of finance and its investment banker have decided on a rights offering, but are not sure how much to discount the subscription price from the current market value. Discounts of 10%, 20%, and 40% have been suggested. Common stock is the sole means of financing for the Crandall Corporation.

1) For each discount, determine the subscription price, the number of shares to be issued, and the number of rights required to purchase one share.(Round to one place after the decimal point where necessary).

2) Determine the value of one right under each of the plans (Round to two places after the decimal point).

3) Compute the earnings per share before and immediately after the rights offering under a 10% discount from the market price.

4) By what percentage has the number of shares outstanding increased?

5) Stockholder X has 100 shares before the rights offering and participated by buying 20 new shares.Computer his total claim to earnings both before and after the rights offering (that is, multiply shares by the earnings per share figures computed in part c).

6) Should Stockholder X be satisfied with this claim over a longer period of time?

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