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Free CMA Exam Braindumps (page: 139)

Page 139 of 336
PDF with 1336 Questions
View Related Case Study

A company's stock trades rights-on for $50.00 and ex-rights for $48.00. The subscription price for rights holders is $40.00, and four rights are required to purchase one share of stock. The value of a right when the stock is trading ex-rights is

  1. $0.40
  2. $0.50
  3. $2.00
  4. $2.50

Answer(s): C

Explanation:

If a stock can be purchased for $48 on the open market, or for $40 with four rights, each right must be worth $2.00 ($8 savings ÷ 4 rights).



View Related Case Study

The market value of a share of stock is $50, and the market value of one right prior to the ex-rights date is $2.00 after the offering is announced but while the stock is still selling rights-on. The offer to the shareholder is that it will take three rights to buy an additional share of stock at a subscription price of $40 per share. If the theoretical value of the stock when it goes ex-rights is $47.50, then the shareholder

  1. Does not receive any additional benefit from a rights offering
  2. Receives an additional benefit from a rights offering.
  3. Merely receives a return of capital
  4. Should redeem the right and purchase the stock before the ex-rights date

Answer(s): A

Explanation:

Plugging the amounts into the formula given in the preceding question produces a theoretical value of $2.50 per right, which leaves a theoretical value of $47.50 for the stock.
($50 - $40) ÷ (3 + 1)= $2.50
However, if the stock declines to $47.50 when the right is worth only $2, the original investor is worse off than before the rights issuance, i.e., the investor would have only $49.50 worth of investments. Hence, the original shareholder receives no benefit from the issuance of the rights.



View Related Case Study

Growl Corporation's $1,000 par value convertible debentures are selling at $1,040 when its stock is selling for $46.00 per share. If the conversion ratio is 20, what will be the conversion price?

  1. $22.61
  2. $46.00
  3. $50.00
  4. $52.00

Answer(s): C

Explanation:

The conversion price is the assumed price of the stock, which was set at the time the bonds were issued. Dividing the $1,000 face value by the 20 shares results in a conversion price of $50.



View Related Case Study

On January 1 of the current year, Bongo Company issued convertible bonds with $1000 per value and a conversion ratio of 50. Which of the following should be the market price per share of the company's common stock on January 1?

  1. Under$20
  2. $20
  3. Between $20 and $50.
  4. Above $50

Answer(s): A

Explanation:

The conversion price, in this case $20 ($1,000 ÷ 50 shares), is normally greater than the market price at the time the bonds are issued. Therefore, the market price must be less than $20.



Page 139 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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