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Chapter 5: 15BP-d (page 569)

Mr. and Mrs. Anderson own two shares of Magic Tricks Corporation鈥檚 common stock. The market value of the stock is \(58. The Andersons also have \)46 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $46 for each two shares currently owned (based on two rights).

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

Short Answer

Expert verified

The value of the portfolio will be $162.

Step by step solution

01

Information provided in the question

Subscription price = $46

Price of one share = $58

Value of right = $4

Ex-rights value of share = $54

Cash = $46

02

Calculation of the value of portfolio

The value of the portfolio is $162.

Portfoliovalue=Stockvalue+Proceedsfromsaleofrights-onshares+Cash=$54脳2+$4脳2+$46=$108+$8+$46=$162

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