14-12 Rights issue Example- YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a l for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right? Current Market Value =9 mil x $15=$135 mil Total shares=9 mil +3 mil=12 mil Amount of new funds =3 mil x $12=$36 mil >New Share Price=(136+ 36)/12=$1425/sh Value of a Right=15-14.25=$0. 75 Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 14- 12 Irwin/McGraw-Hill Rights Issue Current Market Value = 9 mil x $15 = $135 mil Total Shares = 9 mil + 3 mil = 12 mil Amount of new funds = 3 mil x $12 = $36 mil New Share Price = (136 + 36) / 12 = $14.25/sh Value of a Right = 15 - 14.25 = $0.75 Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?