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Jeff's is granting one right for each share of stock outstanding for its new rights offering. The new shares in this offering are priced at $16 plus four rights. The current market price of the stock is $20 a share. What is the value of one right?

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Answer:

$0.80

Explanation:

The computation of the value of one right is shown below:

But before that we need to find out the value per share that excluded from right which is

Value per share excluding right

= (Offered price + number of rights × current market price) ÷ (1 + number of rights)

= (16 + 4 × 20) ÷ (1 + 4)

= 19.20

Now the Value of one right is

= Current market price - Value per share excluding right

= $20 - $19.20

= $0.80

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