If a Rights Offer Is Used as the Means of Funding

question 7

Multiple Choice

If a rights offer is used as the means of funding a positive net present value project,then shareholders should expect the price of their shares to:

• A)remain constant as the value of the project will be offset by the issuance of the new shares.
• B)decrease due to the additional shares being offered.
• C)change but the direction of that change cannot be predicted.
• D)change in direct relation to the change in the book value per share.
• E)increase due to the increased value of the issuing firm.

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Definitions:

Point Purchased

In finance, particularly in mortgage contexts, this refers to prepaid interest that the borrower opts to pay upfront in order to lower the interest rate on the loan.

Monthly Mortgage

A regularly scheduled payment that often includes both interest and principal, made by a borrower to a lender for the repayment of a home loan.

Interest Rate

The percentage rate that is paid by a bank on money that is in some accounts.

Monthly Payment

A specified amount of money paid at regular monthly intervals, typically associated with loans or installment purchases.