In a fair market the value of each right is

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Question - A company has 1 million shares outstanding. No debt. The market value per share is $ 10. To keep things simple, assume that all assets are strictly held as cash (i.e. cash value of assets is the same as the market value of the company).  The company issues rights to the existing shareholders (one right for one old share). Each right allows the holder to buy one new share from the company for $ 4.  The new shares are identical to the old shares in all respects (upon completion of the rights offering, the new and the old shares are indistinguishable from each other).  The right is allowed to trade in the market. In a fair market the value of each right is?

Reference no: EM132990374

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