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19.6 | Suppose the Newton Company has 10,000 shares of stock. Each share is worth $40, and the company's | | | | | | market value of equity is $400,000. Suppose the firm issues 5,000 shares of the new stock at the following | | | | | | prices: $40, $20, and $10. What will be the effect of the alternative offering prices on the existing price per | | | | | | share? | | | | | | |

Solution | | | | | | | | | Using the assumptions shown below, calculate the current price of the stock using this formula: | | | P = (Market value of equity + proceeds from offering)/total number of shares | | | | | | | | | | | | Assumptions | | | | | | | | Number of shares of stock | | 10 000 | | | | | Market value of equity | | $400 000 | | | | | Number of shares issued at each issue price | 5 000 | | | | | Total number of shares issued | | 15 000 | | | | | | | | | | | | | Issue | Current | | | | | | | Price | Price | | | | | | | $40 | FORMULA | | | | | | | $20 | FORMULA | | | | | | | $10 | FORMULA | | | | | |

19.12 Superior, Inc. is a manufacturer of beta-blockers. Management has concluded that additional equity financing | is required to increase production capacity, and that these funds are best attained through a rights offering. | It has correctly concluded that, as a result of the rights offering, share price will fall from $50 to $45 ($50 is | the rights-on price; $45 is the ex-rights price, also known as the when-issued price). The company is seeking | $5 million in additional funds with a per-share subscription price equal to $25. | | | a. How many shares were there before the offering? | | | |

Solution | | | | | | Using the assumptions shown below, enter formulas to calculate the number of old

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