The Calculation of the Theoretical Ex-Rights Price of a Share

question 67

Multiple Choice

The calculation of the theoretical ex-rights price of a share may be expressed as:

• A) aggregate market price per share immediately prior to exercise of rights plus dividends receivable on the shares divided by number of shares outstanding after the exercise of rights.
• B) aggregate market price per share immediately prior to exercise of rights plus proceeds from the exercise of rights divided by number of shares outstanding after the exercise of rights.
• C) aggregate market price per share immediately after the exercise of rights plus proceeds from the exercise of rights divided by number of shares outstanding before the exercise of rights.
• D) aggregate market price per share immediately after the exercise of rights plus proceeds from the exercise of rights divided by number of shares outstanding after the exercise of rights.

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Definitions:

Proportionate Share

A portion or percentage of an entity or amount that corresponds to an individual's part in the whole.

FMV

Fair Market Value (FMV) is the estimated price at which an asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Basis

The amount paid for an asset, used to calculate gain or loss for tax purposes.

Form 1120

A tax form used by corporations in the United States to report their income, gains, losses, deductions, and credits to the IRS.