The Warm Shoe Co

question 41

Multiple Choice

The Warm Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $100 to $95 ($100 is the rights-on-price; $95 is the ex-rights price, also known as the when-issued price) . The company is seeking $18 million in additional funds with a per-share subscription price of $50. How many shares of stock are outstanding, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds of the offering.)

• A)324,000
• B)360,000
• C)1,800,000
• D)3,240,000
• E)3,600,000

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Definitions:

Casualty Losses

Financial losses resulting from sudden, unexpected, or unusual events such as accidents, natural disasters, or vandalism.

Multiple-Step Income Statement

An income statement that separates operating revenues and operating expenses from non-operating revenues, non-operating expenses, gains, and losses, providing a detailed analysis of income and expenses.

Gross Profit

The difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments.

Income for Operations

The earnings generated from a company's regular, core business activities before interest and taxes.