Asked by Alexis Rampey on Jul 16, 2024
Verified
All else equal, the greater the subscription price of shares in a rights offering, the smaller the number of rights needed to buy one new share.
Subscription Price
The price at which existing shareholders can buy more shares of stock in a rights issue before it is offered to the public.
Rights Offering
A financing process in which a company offers existing shareholders the opportunity to purchase additional shares directly, usually at a discount and before the general public.
- Acknowledge the threats and financial burdens linked with the distribution of securities, such as underpricing and the costs directly associated with issuing.
Verified Answer
KN
Kendra NewmanJul 17, 2024
Final Answer :
False
Explanation :
In a rights offering, the subscription price is the price at which existing shareholders can purchase new shares. The number of rights needed to buy one new share is determined by the terms of the offering and is not directly related to the subscription price. Typically, the lower the subscription price, the more attractive the offer is to shareholders, but this does not necessarily mean fewer rights are needed per new share. The ratio of rights to new shares is set by the company and can vary independently of the subscription price.
Learning Objectives
- Acknowledge the threats and financial burdens linked with the distribution of securities, such as underpricing and the costs directly associated with issuing.