Construct a simple example to show the following:
a. Existing shareholders are made worse off when a company makes a cash offer of new stock below the market price.
b. Existing shareholders are not made worse off when a company makes a rights issue of new stock below the market price even if the new stockholders do not wish to take up their rights.© BrainMass Inc. brainmass.com June 3, 2020, 6:33 pm ad1c9bdddf
a. For example, Pandora Inc makes a cash offer of 2.5
million new stocks at $5 a share. Before the issue
there were 10 million shares outstanding and teh share
price was $6.
Then after the issue,
the total value of the ...
Two examples of situations where shareholders are made worse off by stock issues are examined. The solution is detailed and well presented.