- Describe the role that the “winner’s curse” may play in the underpricing of IPOs.
- (5 marks)
- Does a rights offer cause a share price decrease? Why or why not?
- How are existing shareholders affected by a rights offer? Illustrate your answer with an example.
- TUV Guy Inc. is proposing a rights offering. There are currently 240,000 shares outstanding at $80 each. There will be 60,000 new shares offered at $60 each.
- What is the new market value of the company?
- How many rights are associated with one of the new shares?
- What is the value of a right?
- What is the ex-rights price per share?
- Why might a company have a rights offering rather than a general cash offer?
WXYZ Co. has concluded that additional equity financing will be needed to expand operations, and that the needed funds will b