Rights issues Problem 23 conta

Rights issues Problem 23 contains details of a rights offering by Pandora Box. Suppose that the company had decided to issue new stock at €4. How many new shares would it have needed to sell to raise the same sum of money? Recalculate the answers to questions (b) to (d) in Problem 23. Show that the shareholders are just as well off if the company issues the shares at €4 rather than €5.

Problem 23

Rights issues In 2012, the Pandora Box Company made a rights issue at €5 a share of one new share for every four shares held. Before the issue there were 10 million shares outstanding and the share price was €6.

a. What was the total amount of new money raised?

b. The rights issue gave the shareholder the opportunity to buy one new share for less than the market price. What was the value of this opportunity?

c. What was the prospective stock price after the issue?

d. How far could the total value of the company fall before shareholders would be unwilling to take up their rights?

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