This is simply the current market price of the share of stock.
This is the value of the 10 rights that will be required to purchase a new share of stock.
This answer results from incorrectly interpreting the calculated answer. See the correct answer for a complete explanation.
In order to solve this question, we need to determine the value of the right when it is selling rights-on. This is done using the following formula: P o ? P n Vr = -------------------------- r + 1 Where: Po = The value of a share with the rights still attached Pn = The subscription (sales) price of a share r = The number of rights needed to buy a new share Vr = The value of the right Since 5,000 shares are outstanding and 500 new shares will be issued, 10 shares will be required to buy a new share (5,000 ÷ 500). Putting the values into the formula, we calculate that the value of one right is 10 ? 9 Vr = -------------------------- =.0909 10 + 1
|
