Chapter Review and Self Test Problems

16.1 Flotation Costs The L5 Corporation is considering an equity issue to finance a new space station. A total of $15 million in new equity is needed. If the direct costs are estimated at 7 percent of the amount raised, how large does the issue need to be? What is the dollar amount of the flotation cost?

16.2 Rights Offerings The Hadron Corporation currently has 3 million shares outstanding. The stock sells for $40 per share. To raise $20 million for a new particle accelerator, the firm is considering a rights offering at $25 per share. What is the value of a right in this case? The ex-rights price?

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