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FINA 395 Chapter Notes - Chapter 20: Net Present Value, Underwriting, Dutch Auction

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25 Jan 2015
School
Concordia University
Department
Finance
Course
FINA 395
Professor
Ravi Mateti

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Document Summary

Chapter 20: issuing equity securities to the public. The new market value will be the current shares outstanding times the stock price plus the rights offered times the rights price, so: New market value = 450,000() + 80,000() = ,220,000 b. c. The number of rights associated with the old shares is the number of shares outstanding divided by the rights offered, so: Number of rights needed = 450,000 old shares/80,000 new shares = 5. 63 rights per new share. The new price of the stock will be the new market value of the company divided by the total number of shares outstanding after the rights offer, which will be: Px = ,220,000/(450,000 + 80,000) = . 09 d. Value of a right = . 00 89. 09 = sh. 91: a rights offering usually costs less, it protects the proportionate interests of existing share-holders and also protects against underpricing. The maximum subscription price is the current stock price, or .

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Related Questions

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.

What is the maximum possible subscription price? What is the minimum? (Leave no cells blank - be certain to enter "0" wherever required.)
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.)
Number of new shares
Number of rights needed
c.

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.)
Ex-rights price $
Value of a right $
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.)
Portfolio value before rights $
Portfolio value after rights $

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:

Suppose you own 72,000 shares of common stock in a firm with 3.6 million total shares outstanding. The firm announces a plan to sell an additional 1.8 million shares through a rights offering. The market value of the stock is $34 before the rights offering and the new shares are being offered to existing shareholders at a $4 discount.

If you exercise your preemptive rights, how many of the new shares can you purchase?

What is the market value of the stock after the rights offering?

What is your total investment in the firm after the rights offering?

If you exercise your preemptive right how many original shares and how many new shares do you have?

If you decide not to exercise your preemptive rights, what is your investment in the firm after the rights offering?

If you sell your rights rather than use them, how much money will you receive from the rights sale and what is the total value of your proceeds from the sale of the rights offering plus your investment in the firm?