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1、WebExtension18A1. Thereare10,000,000sharesoutstandingofO'ConnellCo.'sstock,whichnowsellsfor$50pershare.Thecompanyplanstoraise$100millionasnewequitybysellingcommonstock.Sincethepreemptiverightisinthecorporatecharter,rightswillbeused.Managementhasdecidedt
2、hattherightsshouldbeworth$1each:Suchapricewouldassurethatmoststockholderswouldeitherexerciseorselltheirrightsratherthanjustlettingthemexpire,yetacarelessfailuretousetherightswouldnotimposetoosevereahardshiponanyone.WhatsubscriptionpriceshouldO'Connellse
3、tforitsofferingtoobtainthedesiredpriceoftherights,andwhatwillbetheex-rightsstockprice(Me),assumingthetheoreticalrelationshipshold?(Hint:N=Numberofoldshares/Numberofnewshares;Numberofnewshares=Dollarstoberaised/Subscriptionpricepershare.) SubPrice
4、 Ex-rights a. $39.65 $42.50 b. $40.25 $43.50 c. $42.65 $47.50 d. $44.55 $49.00 e. $46.65 $50.00ANSWER: dRATIONALE: Valueforoneright=R=$1.Stockprice,rightson=M0=$50.Subscription=S=?(1) (2)Substitute(2)into
5、(1):Stockprice,ex-rights=Me=M0−R=$50−$1=$49.POINTS: 1DIFFICULTY: Difficulty:ModerateLEARNING OBJECTIVES: INTE.GENE.16.119-LO:18A-1NATIONAL STANDARDS: UnitedStates-BUSPROG:AnalyticSTATE STANDARDS: UnitedStates-AK-DISC:Investmentsandhybridfin-DISC:In
6、vestmentsandhybridfinancingLOCAL STANDARDS: UnitedStates-OH-DefaultCity-TBATOPICS: Subscriptionpriceandex-rightsprice–nonalgorithmicKEYWORDS: Bloom’s:AnalysisOTHER: TYPE:MultipleChoice:ProblemCengageLearningTesting,PoweredbyCogneroPage 4WebExtension
7、18A2. PietersenCorporationmustraiseanadditional$10,000,000ofequitycapitalthroughthesaleofcommonstockinordertofinancetheconstructionofanewplant.ThefirmcurrentlyhasanEPSof$5.40andaP/Eratioof10,with1,200,000sharesoutstanding.Thefirmwilloffernewsharestoitsc
8、urrentstockholdersat$40pershare.Find(1)thenumberofnewsharestobeissued,(2)theex-rightspriceofthestock(assumingthatthenewmarketvalueofthestockwillsimplybetheproceedsofthenewissueplusthecurrentvalueofequity,dividedbynewsharesoutstan
