Question

Schraeder Corporation has 20,000 shares outstanding at $30 each. The firm expects to raise $200,000 via a rights offering at a subscription price of $25. How many rights are required for each new share?

Answer 1

Answer:

3 right/shares

Explanation:

Price per unit of shares issued under “Rights issue”  = Total proceeds from rights issue/ Subscription price of share issued under rights issue  = 200,000  / $25  = 8,000

Number of new shares = 8,000

Original number of shares = 20,000

Thee number of rights required for each new share  = Original number of shares / Number of new shares  = 20,000 / 8,000 =  2.5 = 3 right/shares (approx)