Friday, 22 May 2015

Mr. and Mrs. Anderson own four shares of Magic Tricks Corporation's common stock. The market value of the stock is \$74. The Andersons also have \$54 in cash. They have just received word of a rights offering. One new share of stock can be purchased at \$54 for each four shares currently owned (based on four rights).

 Mr. and Mrs. Anderson own four shares of Magic Tricks Corporation's common stock. The market value of the stock is \$74. The Andersons also have \$54 in cash. They have just received word of a rights offering. One new share of stock can be purchased at \$54 for each four shares currently owned (based on four rights).

 (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

 a. What is the value of a right?

 Value per right \$

 b. What is the value of the Andersons’ portfolio before the rights offering? (Portfolio in this question represents stock plus cash.)

 Portfolio value \$

 c-1. Compute the diluted value (ex-rights) per share.

 Diluted value \$

 c-2. If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock?

 Portfolio value \$

 d. If they sell their two rights but keep their stock at its diluted value and hold on to their cash, what will be the value of their portfolio?

 Portfolio value \$

Explanation: