A company wants to raise $1M using a Rights Issue.

- Shares are currently trading at $7

- Subscription Price is $3

How many shares will be issued ?

Question

A company wants to raise $1M using a Rights Issue.

- Shares are currently trading at $7

- Subscription Price is $3

How many shares will be issued ?

BlackTom AI · Accepted Answer

We need to determine how many shares must be issued in a rights issue to raise $1,000,000.
First, identify the key relationship: total proceeds = number of new shares × subscription price per share.
Here, the company aims to raise $1,000,000 and the subscription price is $3 per share. Therefore, the number of new shares required satisfies: 1,000,000 = (number of shares) × 3.
Solving for the number of shares gives: number of shares = 1,000,000 ÷ 3 = 333,333.333... shares.
Since you typically cannot issue a fraction of a share in practice, this would be rounded according to the company’s rounding policy or regulatory rules; common approaches are to issue 333,333 shares with a small oversubscription adjustment or issue 333,333.33 shares conceptually if fractional units are allowed for theoretical purposes.
A few clarifications:
- If rounding to whole shares only, you would either issue 333,333 shares at $3 each, raising $999,999, or 333,334 shares at $3 each, raising $1,000,002. This depends on policy and whether fractional rights are permitted.
- The current trading price of $7 is not used in the basic calculation for the number of shares to be issued in a rights offering, since the proceeds come from the subscription price, not the market price.
- The essential formula to remember is: required proceeds ÷ subscription price = number of new shares to issue.

BFIN011 Week 7: Practice Quiz

A company wants to raise $1M using a Rights Issue. - Shares are currently trading at $7 - Subscription Price is $3 How many shares will be issued ?

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