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baxter owns 15 shares of stock valued at $20 a share. he receives one right per share. under the rights offer, the cost of one new share is 3 rights plus $10. what is the value of one right?

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Final answer:

The value of one right for Baxter, who owns 15 shares at $20 each under a rights offer where 3 rights plus $10 can buy a new share, is approximately $3.33. The valuation takes into account the added worth to Baxter's portfolio after exercising all the rights.

Step-by-step explanation:

To calculate the value of one right when Baxter owns 15 shares of stock valued at $20 a share and receives one right per share, with the rights offer allowing him to buy one new share for 3 rights plus $10, we can follow these steps:

  1. First, determine the total value of the shares without the rights, which is 15 shares × $20 = $300.
  2. Then, calculate the value of the new shares he can buy with the rights. With 15 rights (1 per share), he can buy 5 new shares (since it takes 3 rights to buy one share) at $10 each, totalling $50.
  3. Now, find the total value after he exercises all rights, which would be the initial $300 plus the $50 for the new shares, equalling $350.
  4. The increase in value due to the rights is $350 - $300 = $50.
  5. Finally, divide the increase by the number of rights to find the value of one right: $50 ÷ 15 rights = approximately $3.33 per right.

Therefore, the value of one right for Baxter is approximately $3.33.

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