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

The new offering that the company is doing equates one right to each share of existing stock and is expected to raise $12 million in new financing at a cost of $40. The goal is to find out how many new shares this will add.

= 12,000,000/40

= 300,000 shares

This means that 300,000 new shares will be added.

There are already 3,000,000 shares outstanding and now there are 300,00 extra which would bring the total to,

= 3,000,000 + 300,000

= 3,300,000 outstanding shares.

Since you sold your rights then you still have shares but now your percentage of ownership will change because of the increase in outstanding shares.

Your ownership percentage is now,

= 300,000 shares (that you own) / 3,300,000 (new outstanding balance)

= 0.0909

= 9.09%

Your new ownership position is that you own 9.09% of Webster Mills.

andromache andromache · Answer 2 · 2021-11-19T12:16:59+01:00

The new ownership position if you opted to sell your rights rather than exercise them personally is 9.09% of 3.3 Million shares.

The calculation is as follows:

New shares Issued is

= Proceeds ÷ Subscription price

= $12 M ÷ $40

= 300,000

Now

New Composition = No. of shares held ÷ Total shares after issuance

= 300,000 ÷ 3,300,000

= 0.0909

= 9.09%

Therefore we can conclude that The new ownership position if you opted to sell your rights rather than exercise them personally is 9.09% of 3.3 Million shares.

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