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    How Corporations Issue Securities : Stock Issues, Amount Raised and Shareholders' Rights

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    In 1988 the Pandora Box Company made a rights issue at $5 a share of one new share for every four shares held. Before the issue there were 10 million shares outstanding and the share price was $6.

    a. What was the total amount of the new money raised?

    b. What was the value of the right to buy one new share?

    c. What was the prospective stock price after the issue?

    d. How far could the total value of the company fall before shareholders would be unwilling to take up there rights.

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    Solution Preview

    a. amount of new shares * price/share = 10 million/4 * $5 = 12.5 million

    b. numberOfRightsToBuyAShare = ...

    Solution Summary

    Stock issues, amount raised and shareholders' rights are investigated in the solution.