Suppose You Own 500,000 Shares of Common Stock in a Firm

question 61

Multiple Choice

Suppose you own 500,000 shares of common stock in a firm with 40 million total shares outstanding. The firm announces a plan to sell an additional 5 million shares through a rights offering. The market value of the stock is $32.5 before the rights offering and the new shares are being offered to existing shareholders at a $2.50 discount. If you exercise your preemptive rights,how many of the new shares can you purchase?

• A)100,000 shares
• B)50,000 shares
• C)62,500 shares
• D)32,500 shares
• E)45,000 shares