a.
To calculate: The rights that Todd Winningham could buy with $4,800 as well as the number of shares he can buy with $4,800 at the rate of $66 per share of Gallagher Tennis Clubs Inc.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
Share Price:
The highest price that an investor is wishes or agree to pay for one share of a company is termed as the share price. It is the current price used for the trading of such shares.
a.
Answer to Problem 14P
Todd Winningham can buy 73 shares and 1,600 rights with $4,800 at the rate of $66 per share of Gallagher Tennis Clubs Inc.
Explanation of Solution
Calculation of the number of rights Todd can buy:
Calculation of the number of shares Todd can buy:
Working Note:
Calculation of the value of one right:
b.
To calculate: The profit on Todd’s investment in the rights if the price of the Gallagher stock rises to $70 per share ex-rights.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
b.
Answer to Problem 14P
The profit on Todd’s investment in the rights is $1,072 if the price of the Gallagher stock rises to $70 per share ex-rights.
Explanation of Solution
Calculation of the total profits on rights:
Working Notes:
Calculation of profit per right:
Calculation of the value per right:
c.
To calculate: The profit on Todd’s investment in the stocks if the price of the Gallagher stock rises to $70 per share ex-rights.
Introduction:
Share Price:
The highest price that an investor is wishes or agree to pay for one share of a company is termed as the share price. It is the current price used for the trading of such shares.
c.
Answer to Problem 14P
The profit on Todd’s investment in the stocks is $292 if the price of the Gallagher stock rises to $70 per share ex-rights.
Explanation of Solution
Calculation of the total profits on shares:
Working Notes:
Calculation of profit per share:
d.
To determine: The effect on Todd’s investment in the rights if the price of the Gallagher stock falls to $40 per share ex-rights instead of rising to $70.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
d.
Answer to Problem 14P
There will be a loss on Todd’s entire investment if the price of the Gallagher stock falls to $40 per share ex-rights instead of rising to $70.
Explanation of Solution
Calculation of the loss on rights:
Working Notes:
Calculation of loss per right:
Calculation of the value of one right:
e.
To determine: The effect on Todd’s investment of the stocks if the price of the Gallagher stock falls to $40 per share ex-rights.
Introduction:
Right Shares:
It refers to the shares issued by corporations to their existing stockholders. It is also a type of invitation to existing shareholders for purchasing additional stocks of the company and is also termed as rights issue.
Share Price:
The highest price that an investor is wishes or agree to pay for one share of a company is termed as the share price. It is the current price used for the trading of such shares.
e.
Answer to Problem 14P
There will be a loss of $1,898 on Todd’s investment in shares if the price of the Gallagher stock falls to $40 per share ex-rights.
Explanation of Solution
Calculation of total loss:
Working Note:
Calculation of loss per share:
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Chapter 17 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
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