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: