Miller Fruit Wants to Expand Its Citrus Grove Operations

question 48

Multiple Choice

Miller Fruit wants to expand its citrus grove operations.The firm estimates that it needs $8.6 million to buy land and establish its operations.Currently,the firm has 540,000 shares of stock outstanding at a market price per share of $34.80.If the firm decides to raise the needed capital through a rights offering,one right will be issued for each share of stock.The subscription price will be set at $33 a share.How many rights will a shareholder need to purchase one new share of stock in this offering?

• A)2.07 rights
• B)2.17 rights
• C)2.22 rights
• D)2.50 rights
• E)2.67 rights

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Definitions:

Fair Market Value

The price at which an asset would sell in an open and competitive market where the buyer and seller each have reasonable knowledge of the relevant facts.

Estimated Useful Life

Estimated useful life is the period over which an asset is expected to be usable for its intended purpose, used to calculate depreciation.

Periodic Depreciation

The method of allocating the cost of a tangible asset over its useful life on a periodic basis, usually annually.

Retroactive Change

A change applied to past periods or transactions in financial records or systems, typically to correct errors or implement new information.