What will the share price be after the rights issue

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The company would like to raise money for future investment and is considering a rights issue. Every existing shareholder will be sent one right per share of stock that he or she owns. The management has worked out two alternative plans. In the first plan, the company will require five rights to purchase one share at a price of $3.490 per share. In the second plan, each right gives the holder the right to purchase one share at $0.698 per share. Note that the company's current share price (on the 3rd May 2021) is $3.490.

Problem 1: How much money will each plan raise? (Assume the rights issue is successful)

Problem 2: What will the share price be after the rights issue? (Assume perfect capital markets)

Problem 3: Which plan is more likely to raise the full amount of capital?

Reference no: EM132911583

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