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American Airlines Corporation (AAL) has a rights offering. Before the rights offering American Airlines had 10 million shares of common stock authorized, with 4 million issued and 1 million shares of treasury stock. In a standby rights offering, 1 million additional shares are offered to the current stockholders. Assume that the existing stockholders subscribe to 600,000 of these shares. After the completion of the rights offering, how many shares of common are outstanding?
Because 4 million shares were issued and 1 million shares of treasury stock existed, 3 million shares were outstanding. The existing stockholders subscribed to 600,000 new shares. However, because AAL used a standby (firm) underwriting, the additional 400,000 shares were also issued. Therefore, a total of 4 million shares are outstanding.
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American Airlines Corporation (AAL) has a rights offering. Before the rights offering American Airlines had 10 million shares of common stock authorized, with 4 million issued and 1 million shares of treasury stock. In a standby rights offering, 1 million additional shares are offered to the current stockholders. Assume that the existing stockholders subscribe to 600,000 of these shares. After the completion of the rights offering, how many shares of common are outstanding?
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