Toronto Corporation wants to raise $1,210,000 via a rights offering. The company currently has 220,000 shares of common stock outstanding that sells for $32 per share. The issue will allow current...

Toronto Corporation wants to raise $1,210,000 via a rights offering. The company currently has 220,000 shares of common stock outstanding that sells for $32 per share. The issue will allow current stockholders to purchase one additional share for 5 rights.

a) What will be the ex-rights stock price, the value of a right, and the appropriate subscription price?

b) If 2 rights are needed to purchase on additional share, how does the stockholders’ wealth change?

c) Why do you think the company chose a rights issue rather than a general cash offer to raise new capital?