Rights issue
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Jelly Beans, Inc., is proposing a rights offering. There are 100,000 outstanding shares at $25 each. There will be 10,000 new shares issued at a $20 subscription price.
1. What is the value of a right?
2. What is the ex-rights price?
3. What is the new market value of the company?
4. Why might a company have a rights offering rather than a common stock offering?
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The solution explains the various calculations relating to rights issue
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3. We first find the new market value of the company. The market value is given as no. of shares outstanding X price per share.
The exisiting market value is 100,000X25 = 2,500,000
The incremental market ...
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