Sec. 7] CAPITAL ACCOUNTS 77 
The additional capital will first take the form of cash, 
but afterward, by the purchase of plant, equipment, ete., 
will be changed into these or other forms of wealth or 
property. We shall suppose, however, for the present, that 
in whatever form invested, the value remains exactly equal 
to the cost, namely, $100,000, so that the assets are 
changed from $300,000 to $400,000. 
$7 
Let us assume that the books accurately represent actual 
values and correspond to market prices. After the newissue 
of stock, we find $200,000 of stock certificates representing 
$300,000 of actual value of capital, surplus and undivided 
profits, or $150 per share. But the new stock was, we 
assumed, issued to them at $100 a share. Hence the 
original stockholders will be able to make a profit on their 
new stock by buying at the issue price of $100 and then 
selling at $150; or they may shorten this operation by sell- 
ing their “right to subscribe” for $50. At first sight it 
would seem as though this right to subscribe represented 
a mysterious bonus to the stockholders, due to the issue of 
the new stock. It must be remembered, however, that 
the $100,000 par value of original stock certificates repre- 
sented, including the surplus, $200,000 worth of property 
belonging to the stockholders, consequently the original 
certificates were worth $200 per share. That is, the effect 
of issuing new stock below the original market price was 
to lower the value of the old stock from $200 per share to 
$150 per share. Consequently the loss of $50 to the stock- 
holders on their old stock will exactly compensate for the 
$50 of excess value represented in the rights to subscribe. 
An individual stockholder owning 10 of the original shares 
will find them worth, instead of $2000, only $1500, that is, 
he will lose $500. This will equal the profit of $500 on 
his 10 new shares or the value of his rights to subscribe 
for them. The outside public would be willing to pay