What will be the value of their portfolio

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Mr. and Mrs. Anderson own five shares of Magic Tricks Corporation's common stock. The market value of the stock is $60. The Andersons also have $48 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $48 for each five shares currently owned (based on five rights).

a. What is the value of a right?
b. What is the value of the Andersons' portfolio before the rights offering?
(Portfolio is this question represents stock plus cash.)
c. If the Andersons participate in the rights offering, what will be the value of their portfolio, based on the diluted value (ex-rights) of the stock?
d. If they sell their five rights but keep their stock at its diluted value and hold on their cash, what will be the value of their portfolio?

 

Reference no: EM13296205

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