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A company plans to raise $12 millionto finance an expansion project using a rights issue.
Relevant data:
* Shares will be offered at a 20% discountto the present market price of $15.00 per share.
* There are currently 2 million shares in issue.
* The project is forecast to yield a positive NPV of $6 million.
What is the yield-adjusted Theoretical Ex-Rights Price following the announcement of the rights issue?
Suggested Answer: A
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Calc_Set3
29 comments · newest first
DE
Desiree
10 months ago
Totally agree, $11.00 makes sense with the discount!
BO
Bong
10 months ago
I think the new price will be around $11.00.
JO
Joanne
10 months ago
The shares are offered at a 20% discount, so that's $12 each.
JO
Jody
11 months ago
Wait, how does a $6 million NPV fit into this?
LI
Ligia
11 months ago
Not sure about that, $9.00 seems too low for a rights issue.
OR
Oretha
11 months ago
I feel like the NPV of the project might play a role in determining the value, but I'm not entirely sure how it integrates into the ex-rights price calculation.
BE
Becky
11 months ago
This question seems similar to one we practiced where we had to adjust for new shares issued. I hope I can remember the steps correctly.
JE
Jean
12 months ago
I think the discount on the shares will affect the ex-rights price, but I can't recall how to factor that into the calculation.
DA
Darnell
12 months ago
I remember we calculated the theoretical ex-rights price in class, but I'm a bit unsure about the exact formula to use here.
KR
Kristel
12 months ago
Whoa, this is a lot of information to process. I better take it step-by-step and make sure I'm not missing anything crucial in the calculations.
LA
Laura
1 year ago
Ah, a rights issue question. I'm confident I can handle this - I've practiced similar problems before. Time to put my knowledge to the test.
MA
Mabel
1 year ago
Okay, I think I've got this. I just need to plug the numbers into the right formula and do the math. Should be straightforward if I can remember the steps.
LY
Lynna
1 year ago
Hmm, I'm a bit unsure about how to approach this. I'll need to review the formulas for rights issues and make sure I understand the key variables.
AD
Adela
1 year ago
This looks like a tricky question on rights issues. I'll need to carefully work through the calculations to determine the theoretical ex-rights price.
MI
Milly
1 year ago
Hmm, maybe I should reconsider my answer then
MO
Mollie
1 year ago
I agree with Derick, the discount should impact the price
PE
Peggie
1 year ago
Wait, is this a trick question? Nah, can't be. B) $14.00 is the clear winner here. Time to show off my finance skills!
DE
Deangelo
1 year ago
Ooh, a rights issue question! My favorite. B) $14.00 is the way to go, easy peasy.
DE
Derick
1 year ago
But wouldn't the discount affect the price differently?
MI
Milly
1 year ago
I believe it's B) $14.00
DO
Dong
1 year ago
Ah, the good old rights issue problem. I remember this one from my studies. The answer has to be B) $14.00, no doubt about it.
BO
Bok
1 year ago
Hmm, this seems straightforward enough. Let me think this through... Yep, B) $14.00 is the correct answer.
NA
Nan
1 year ago
Yes, the answer is definitely B) $14.00.
HE
Hermila
1 year ago
I agree, it should be $14.00 after the rights issue.
CR
Cruz
1 year ago
I think the yield-adjusted Theoretical Ex-Rights Price is $14.00
ME
Merilyn
1 year ago
This question is a classic in corporate finance! I'm pretty sure the answer is B) $14.00.
RO
Ronnie
1 year ago
No, I'm pretty sure it's B) $14.00. The discount and NPV should be factored in.
TH
Theodora
1 year ago
I think the answer is actually A) $16.00.
DE
Derick
1 year ago
I think the answer is A) $16.00