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Katena32
1 month ago
14

ou currently own 10 percent of the 3.0 million outstanding shares of Webster Mills. The company has just announced a rights offe

ring with a subscription price of $40. One right will be issued for each share of outstanding stock. This offering will provide $12 million of new financing for the firm, ignoring all issue costs. Assume that all rights are exercised. What will be your new ownership position if you opted to sell your rights rather than exercise them personally
Business
1 answer:
harina [3.1K]1 month ago
8 0

Answer: 9.09% ownership

Explanation:

Your shareholding in Webster Mills amounts to 10% of 3 million.

This translates to owning,

= 10% * 3 million

= 300,000 shares.

The firm’s upcoming offering allocates one right for every existing share, aiming to secure $12 million at a cost of $40 per share. We need to determine how many new shares will be introduced.

= 12,000,000/40

= 300,000 shares

This indicates that 300,000 new shares will be created.

<p.With the current count of 3,000,000 shares, the addition of 300,000 will result in a total of,

= 3,000,000 + 300,000

= 3,300,000 shares total.

<p.Having sold your rights means you still retain your shares, but your ownership percentage will adjust due to the increase in the total share count. <p.Your new ownership percentage is now,

= 300,000 shares (held by you) / 3,300,000 (total new outstanding shares)

= 0.0909

= 9.09%

<p.Thus, you now possess 9.09% of Webster Mills.
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