Market value in the context of rights offering

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Reference no: EM133433539

Question 1. Discuss dilution of percentage ownership and dilution of market value in the context of rights offering.

Question 2. Discuss three plausible reasons for underpricing in an IPO.

Question 3. QRS N-Queries Company has an exciting new project that will cost $10,000,000. The company proposes to finance this project by issuing new shares with a rights offering. Currently, the company has 2,000,000 shares outstanding, each valued in the financial market at $30. With the rights offering, shareholders will be able to purchase one new share for a subscription price of $10.

What is the rights-on price for each share, M₀?
How many new shares will be issued?
How many rights will be required to buy one new share, N?
What is the value of a right before the ex-rights date, R₀?
What is the ex-rights price for each share, M_e?
What is the value of a right after the ex-rights date, R_e?

Reference no: EM133433539

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