Question

AEP Corp currently has 12000000 shares outstanding. The market price is $26/ sh. AEP decides to raise additional funds via a 1 for 14 rights offer at $23 per share. If we assume 100% subscription, what is the value of each right? Input your answer to two decimal point of accuracy, DO NOT include the dollar sign.

Answer 1

The value of each right is $3.

Step-by-step explanation:

The value of each right can be calculated by subtracting the market price per share from the subscription price per share.

Value of Each Right=

Number of Rights Needed to Buy One New Share

Market Price - Subscription Price

In this case:

Market Price = $26 per share

Subscription Price = $23 per share

Number of Rights Needed to Buy One New Share = 14 rights (as it's a 1 for 14 rights offer)

Value of Each Right

=

26

−

23

14

Value of Each Right=

14

26−23

​

Value of Each Right

=

3

14

Value of Each Right=

14

3

Now, calculate the result:

Value of Each Right

≈

0.2143

Value of Each Right≈0.2143

Therefore, the value of each right, rounded to two decimal places, is approximately 0.21.