Question

Boles Bottling Co. has issued rights to its shareholders. The subscription price is $45.59 and five rights are needed along with the subscription price to buy one of the new shares. The stock is selling for $51.19 rights-on.

a. What would be the value of one right?
b. If the stock goes ex-rights, what would the new stock price be?

Answer 1

The value of one right is $9.118 and the new stock price would be $42.072.

Step-by-step explanation:

To find the value of one right, we need to divide the subscription price by the number of rights needed to buy one share. In this case, the subscription price is $45.59 and five rights are needed, so the value of one right would be $9.118 ($45.59 / 5 = $9.118).

If the stock goes ex-rights, the new stock price would be adjusted to reflect the value of the rights. To calculate the new stock price, we subtract the value of one right from the current stock price. In this case, the stock is selling for $51.19 rights-on and the value of one right is $9.118, so the new stock price would be $42.072 ($51.19 - $9.118 = $42.072).

Answer 2

The value of one right would be approximately $0.93. The new stock price when the Boles Bottling Co. stock goes ex-rights would be approximately $50.26.

Step-by-step explanation:

The question asks to calculate the value of one right and the new stock price ex-rights.

a. Value of One Right

The formula to calculate the value of one right (Vr) is given by:

Vr = (P - S) / (N + 1)

where P = market price per share rights-on, S = subscription price per share, and N = number of rights required to purchase one new share.

Using the given values:

Vr = ($51.19 - $45.59) / (5 + 1)

Vr = $5.60 / 6

Vr = $0.93

The value of one right would be approximately $0.93.

b. Stock Price Ex-Rights

The ex-rights price (Per) can be calculated as:

Per = (N • P + S) / (N + 1)

Using the given values:

Per = (5 • $51.19 + $45.59) / (5 + 1)

Per = ($255.95 + $45.59) / 6

Per = $301.54 / 6

Per = $50.26

The new stock price when it goes ex-rights would be approximately $50.26.