13. Computer Graphics has announced a rights offering for its shareholders. Carol Stevens owns 1,400 shares of Computer Graphics stock. Four rights plus \(54 cash are needed to buy one of the new shares. The stock is currently selling for \)66 rights-on.

a. What is the value of a right?

Short Answer

Expert verified

Answer

The value of the right is $2.40.

Step by step solution

01

Information provided in the question

Subscription price = $54

Price of one share = $66

Rights required to purchase a new share = 4

02

Calculation of the value of one right

The value of one right is $2.40.

R=M0-SN+1=$66-$544+1=$125=$2.40

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Most popular questions from this chapter

What is shelf registration? How does it differ from the traditional requirements for security offerings?

Discuss the relationship between the coupon rate (original interest rate at time of issue) on a bond and its security provisions. (LO16-1)

The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.

Assets

Book value

Liquidation value

Accounts receivables

\(1,400,000

\)1,200,000

Inventory

\(1,800,000

\)900,000

Machinery and equipment

\(1,100,000

\)600,000

Building and plant

\(4,200,000

\)2,500,000

Total assets

\(8,500,000

\)5,200,000

Liabilities and stockholder’s claims

Liabilities

Accounts payable

\(2,800,000

First lien, secured by machinery and equipment

\)900,000

Senior unsecured debt

\(2,200,000

Subordinated debenture

\)1,700,000

Total liabilities

\(7,600,000

Stockholder’s claims

Preferred stock

\)250,000

Common stock

\(650,000

Total stockholder’s claims

\)900,000

Total liabilities and stockholder’s claims

$8,500,000

f. Compute a ratio of your answers in part d and e. This will indicate the initial allocation ratio.

Becker Brothers is the managing underwriter for a 1.45-millon-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 10 percent of the issue. Its price is \(27 per share, and the price to the public is \)28.95.

Becker also provides the market stabilization function. During the issuance, the market for the stock turns soft, and Becker is forced to purchase 50,000 shares in the open market at an average price of \(27.50. It later sells the shares at an average value of \)27.20.

Compute Becker Brother’s overall gain or loss from managing the issue.

Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.

Size of Offer Public Price Net to Corporation

a. 1.1 million................. \(30 \)27.50

b. 7.0 million…………… \(30 \)28.44

c. 28.0 million………… \(30 \)29.15

What is the percentage underwriting spread for each size offer?

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