09 May WHAT WOULD BE THE ANSWER TO PART C IF THE PRICE OF GALLAGHER’S STOCK FALLS TO $30 PER SHARE EX-RIGHTS?
Managerial Finance 476(II)11. Todd Winningham IV has $4 000 to invest. He has been looking at Gallagher Tennis Clubs Inc. common stock. Gallagher has issued a rights offering to its common stockholders. Six rights plus $38 cash will buy one new share. Gallagher’s stock is selling for $50 ex-rights.a. How many rights could Todd buy with his $4 000? Alternatively how many shares of stock could he buy with the same $4 000 at $50 per share?b. If Todd invests his $4 000 in Gallagher rights and the price of Gallagher stock rises to $59 per share ex-rights what would his dollar profit on the rights be? (First compute profits per right.)c. If Todd invests his $4 000 in Gallagher stock and the price of the stock rises to $59 per share ex-rights what would his total dollar profit be?d. What would be the answer to part b if the price of Gallagher’s stock falls to $30 per share ex-rights instead of rising to $59? e. What would be the answer to part c if the price of Gallagher’s stock falls to $30 per share ex-rights?
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