The actual market value of a right will differ from its theoretical value for all of the following reasons Except for:
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A. B. C. D.A
When a company offers its existing shareholders the right to purchase additional shares of the company's stock at a discounted price, it's known as a rights offering. The theoretical value of a right is the calculated value of the right based on the stock's current market price, the subscription price of the new shares, and the number of rights needed to purchase a share. However, the actual market value of a right may differ from its theoretical value due to several reasons.
(A) The size of the firm's marginal tax rate can impact the value of the right as it affects the after-tax proceeds of exercising the right. However, this can cause the actual market value to differ from the theoretical value.
(B) The amount of transaction costs incurred can also impact the value of the right, as the costs of buying and selling rights in the market can reduce the net value of the right. Thus, it can cause the actual market value to differ from the theoretical value.
(C) Investor speculation is another factor that can impact the value of the right, as investor expectations about the company's future performance can affect the demand for the right and, in turn, its market value. Therefore, it can cause the actual market value to differ from the theoretical value.
(D) The irregular exercise and sale of rights over the subscription period can also impact the value of the right as it can create imbalances in the supply and demand of the rights, leading to fluctuations in their market value. Therefore, it can cause the actual market value to differ from the theoretical value.
Therefore, the answer to this question would be (D) since it is the only option that is NOT a reason why the actual market value of a right would differ from its theoretical value.