The Wordsmith Corporation has 40,000 shares outstanding with a market price of $25 each. The firms expects to raise $200,000 via a rights offering at a subscription price of $20. How many rights must be submitted to acquire one new share

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Business

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18 July, 00:27

The Wordsmith Corporation has 40,000 shares outstanding with a market price of $25 each. The firms expects to raise $200,000 via a rights offering at a subscription price of $20. How many rights must be submitted to acquire one new share

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Answers (2)

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Emmett Clarke · Answer 1

Five Rights for one new share

Explanation:

Oustanding Shares 40000

Market Price 25

Investment required 200000

Market Price 200000 25 8000

Exercise Price 200000 20 10000

Benefit 2000

20%

Five Rights for one new share

Brett Hurley · Answer 2

4 rights will be submitted to obtain 1 share

Explanation:

Shares are issued by companies to raise capital for their operations. Outstanding shares are those that have been given out already and on which the company is obligated to pay dividends.

Wordsmith corporation wants to raise $200,000 from new shares at $20 each. They had 40,000 shares outstanding initially.

Number of new shares = 200,000/20 = 10,000

Therefore

Number of rights that is needed on existing shares = 40,000/10,000 = 4