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1 - Coral Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. Each right entitles the holder to purchase one...
1 - Coral Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. Each right entitles the holder to purchase one share of stock for $25. One right is issued for every two shares of stock owned. John owns 100 shares of stock in Coral, which he purchased three years ago for $3,000. At the time of the distribution, the value of the stock is $45 per share and the value of the rights is $2 per share. John receives 50 rights. He exercises 25 rights and sells the remaining 25 rights three months later for $2.50 per right.
