Equity offerings Gamma Corporation currently has 10 million shares of stock outstanding at a price of $40 per share. The

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Equity offerings
Gamma Corporation currently has 10 million shares of stockoutstanding at a price of $40 per share. The company would like toraise money and has announced a rights issue. Every existingshareholder will be sent one right per share of stock that he orshe owns. The company plans to require five rights to purchase oneshare at a price of $40 per share.
Assuming the rights issue is successful, how much money will itraise?
What will the share price be after the rights issue? (Assumeperfect capital markets.)
Suppose instead that the firm changes the plan so that eachright gives the holder the right to purchase one share at $8 pershare.
3. How much money will the new plan raise?
What will the share price be after the rights issue?
Which plan is better for the firm’s shareholders? Which is morelikely to raise the full amount of capital?