Chapter 15

1. Rights Offerings [LO4] Big Time, Inc, is proposing a rights offering. Presently there
are 500,000 shares outstanding at $81 each. There will be 60,000 new shares offered at
$70 each.
a. What is the new market value of the company? 500,000*81+60,000*70=a
b. How many rights are associated with one of the new shares?
500,000/60,000=b
c. What is the ex-rights price? a/(500,000+60,000)=c
d. What is the value of a right? c-81=d units formula转化成whole the formula，上下乘以
new amount.
e. Why might a company have a rights offering rather than a general cash offer?
可以，够简洁 GCO means fund raising public
accessible
2. Rights Offerings [LO4] The Clifford Corporation has announced a rights offer to
raise $40 million for a new journal, the Journal of Financial Excess. This journal will
review potential articles after the author pays a nonrefundable reviewing fee of $5,000 定金，暂无用
per page. The stock currently sells for $53 per share, and there are 4.1 million shares
outstanding. 0--pay nothing and get the share
53——current price
a. What is the maximum possible subscription price? What is the minimum? （0，53）小括号
b. If the subscription price is set at $48 per share, how many shares must be sold?
How many rights will it take to buy one share?
c. What is the ex-rights price? What is the value of a right?
d. Show how a shareholder with 1,000 shares before the offering and no desire (or
money) to buy additional shares is not harmed by the rights offer.

12. Rights [LO4] Keira Mfg. is considering a rights offer. The company has determined
that the ex-rights price would be $71. The current price is $76 per share, and there are
19 million shares outstanding. The rights offer would raise a total of $60 million. What
is the subscription price? 确实total要简单直接些

14. Selling Rights [LO4] Roth Corp. wants to raise $5.6 million via a rights offering.
The company currently has 650,000 shares of common stock outstanding that sell for
$50 per share. Its underwriter has set a subscription price of $23 per share and will
charge the company a 6 percent spread. If you currently own 5,000 shares of stock in
the company and decide not to participate in the rights offering, how much money can
you get by selling your rights?

15. Valuing a Right [LO4] Knight Inventory Systems, Inc, has announced a rights offer.
The company has announced that it will take four rights to buy a new share in the
offering at a subscription price of $35. At the close of the business day before the ex-
rights day, the company’s stock sells for $60 right-on
per share. The next morning, you notice
that the stock sells for $53 per share and the rights sell for $3 each. Are the stock and
the rights correctly priced on the ex-rights day? Describe a transaction in which you
could use these prices to create an immediate profit.
以后一个简单的判断是否有profit的方法可以是：
（right1-right_now)*Q 加减ex-price的差值
现在的价格，high 加low减
buy low sell high：具体示例看题中，right is undervalued，所以buy
Chapter 24

10. Convertible Bonds [LO6] The following facts apply to a convertible bond making
semiannual payments:

Conversion price $55/share

Coupon rate 5.2%
Par value $1,000
Yield on nonconvertible debentures of same quality 7%
Maturity 30 years
Market price of stock $41/share

a. What is the minimum price at which the convertible should sell?

b. What accounts for the premium of the market price of a convertible bond over
the total market value of the common stock into which it can be converted?

11. Calculating Values for Convertibles [LO6] You have been hired to value a new30-
year callable, convertible bond. The bond has a 7 percent coupon, payable semi-
annually, and its face value is $1, 000. The conversion price is $45, and the stock
currently sells for $39.
a. What is the minimum value of the bond? Comparable nonconvertible bonds are
priced to yield 9 percent
b. What is the conversion premium for this bond?

18. Intuition and Convertibles [LO6] Which of the following two sets of relationships,
at time of issuance of convertible bonds, is more typical? Why?

A B
Offering price of bond $800 $1,000
Bond value(straight debt) 800 950
Conversion value 1,000 900

19. Convertible Calculations [LO6] Rayne, Inc, has a $1,000 face value convertible
bond issue that is currently selling in the market for $960. Each bond is exchange-able
at any time for 22 shares of the company's stock. The convertible bond has a 6 percent
coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 9
percent. The bond matures in 20 years. Stock in Rayne sells for $35 per share.
a. What are the conversion ratio, conversion price, and conversion premium?
b. What is the straight bond value? The conversion value?
c. In part (b), what would the stock price have to be for the conversion value and
the straight bond value to be equal?
d. What is the option value of the bond?