Ex-Rights Pricing - Lecture notes ALL PDF

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Theoretical Ex-Rights Price 1. Market price that a stock will have, after a new rights issue 2. Although stock price not likely to change immediately 3. ‘Rights expiration date’ 4. Based on company’s market capitalisation & shares outstanding 5. 25% more shares than currently outstanding = price of stock will be 25% less in future 6. It is possible for multiple theoretical values to be calculated for the same stock 7. Variance occurs because when shares bought & sold, market value fluctuates 8. Rights Issue: ⁃ When company chooses to offer additional stock offerings ⁃ Current shareholders given opportunity to purchase portion of these shares at discounted price for certain period ⁃ Portion for each shareholder = proportional to their current stake ⁃ Right does not have to be exercised ⁃ So as to maintain their current percentage 9. Calculation = add the current market value of all shares (Before) & the funds raised as result of rights issue sales 10. Then divide that by total number of shares in existence (After) 11. Investor analysis = Can compare that value to current price 12. Decide whether price will rise again...