Question

Nemesis, Inc., has 215,000 shares of stock outstanding. Each share is worth $81, so the company's market value of equity is $17,415,000. Suppose the firm issues 48,000 new shares at the following prices: $81, $75, and $69. What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the dropdown and enter "O". Round your answers to 2 decimal places, e.g., 32.16.)

Price Ex-Rights Amount $ Effect per share
per share
per share
No change
Price drops by
Price drops by

Answer 1

$81, $75, and $69

a. Market value of existing shares = 215000 * $81 = $17415000

Value of New shares issued = 48000 * $81 = $3888000

$21,303,000

Price after issue of new shares = 21,303,000 / (215000 + 48000)

= 21,303,000 / 263,000

= $81

Conclusion: No changes ($0 per share

b. Market value of existing shares = 215000 * $81 = $17415000

Value of New shares issued = 48000 * $75 = $3600000

$21015000

Price after issue of new shares = 21015000 / (215000 + 48000)

= 21,015,000 / 263,000

= $79.90

Conclusion: There is a decrease in amount (81 - 79.90) = $1.10 per share

c. Market value of existing shares = 215000 * $81 = $17415000

Value of New shares issued = 48000 * $69 = $3312000

$20,727,000

Price after issue of new shares = 20,727,000 / (215000 + 48000)

= 20,727,000 / 263,000

= $78.81

Conclusion: There is a decrease in amount (81 - 78.81) = $2.19 Per share