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5. CJ, Inc. needs to raise $4 million to pay for its Diamonds in the Rough campaign. It will raise the funds by offering 400,000 rights, each of which entitles the owner to buy one new share. The company currently has outstanding 1 million shares priced at $20 each.
a. What must be the share price after the rights issue?
b. What will be the share price after the rights issue?
c. What is the value of the right to buy one share?
d. How many rights would be issued to an investor who currently owns 1,000 shares?

Submitted: 557 days and 11 hours ago.
Category: Finance
Value: $9
Status: AWAITING CUSTOMER ACTION
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tulsa

Posted by BusinessTutor 556 days and 15 hours ago.

Info Request

Hello

I think there is a typing mistake on part a of the question. I have your book so i wanted to check with you, shouldn't a read "What must be the subscription price on the rights the company plans to offer?"

Please advise

Regards,

Accepted Answer

On second thoughts, i thought i would post the solution because when i re-read the question i became sure there was a typing mistake since you have posted the question that says "What must be the share price after the rights issue?" twice.

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If you like my work, you can direct your future posts to me specifically by typing "For BusinessTutor" at the beginning of your post.

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Expert: BusinessTutor
Pos. Feedback: 100.0 %
Accepts: 582
Answered: 4/30/2008

Tutor

MBA - Finance. More than 5000 online tutoring sessions.

Posted by BusinessTutor 556 days and 15 hours ago.

Info Request

Thank you for the Accept XXXXXXX

So was I correct? :)

 

556 days and 12 hours ago.

Reply

Reply to BusinessTutor's Post: I have not heard back form the instructor. She posted the questions online not from the book. Maybe you are but I will just go with what it says online. Thanks for your help

Posted by BusinessTutor 556 days and 12 hours ago.

Info Request

Are you using Fundamentals of Corporate Finance?

556 days and 12 hours ago.

Reply

Yes, but it is an online class and she sometimes just types the questions on the blackboard. It could possible be a typo but I wouldnt even know the difference.

Posted by BusinessTutor 556 days and 12 hours ago.

Info Request

That is ok, i am sure it is a typing mistake because if you look at the question - as i told you - you will see that parts a & b are exactly the same which is impossible

Here is a copy of the question from the Book

Regards,

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