Question

Mountain Products has decided to raise $6 million via a rights offering. The company will issue one right for each share of stock outstanding. The subscription price is set at $20 per share. The current market price of the stock is $25.20 and there are 1,500,000 shares currently outstanding. What is the value of one right? (I keep trying and keep getting B, which I don't think is correct.)

A) $.97
B) $.87
C) $.76
D) $.52
E) $1.04

Answer 1

The value of one right in the rights offering is $5.20.

Step-by-step explanation:

The value of one right is determined by the difference between the subscription price and the market price of the stock. In this case, the subscription price is $20 per share and the market price is $25.20 per share. Therefore, the value of one right is $25.20 - $20 = $5.20. The stockholders will receive one right for each share they own, so the total value of the rights offering is $5.20 per share.