FNCE 370v8 Assignment 5 TUV Guy Inc. is proposing a rights offering. There are currently 240,000 shares outstanding at $80 each. There will be 60,000 new shares offered at $60 each.

FNCE 370v8 Assignment 5

TUV Guy Inc. is proposing a rights offering. There are currently 240,000 shares outstanding at $80 each. There will be 60,000 new shares offered at $60 each. (10 marks)

a. What is the new market value of the company?

b. How many rights are associated with one of the new shares?
c. What is the value of a right?
d. What is the ex-rights price per share?
e. Why might a company have a rights offering rather than a general cash offer?

SOLUTION PREVIEW

a. What is the new market value of the company?

a. 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 = 240,000($80) + 60,000($60) =  $ 22,800,000.00

File name: FNCE-370v8-A5-3-TUV.xls File type: application/vnd.ms-excel Price: $6