THE PAPER by George Herberton Evans, Jr., Theoretical Value of a Stock Right (Journal of Finance, Vol. X, No. 1, March, 1955), is in need of considerable clarification. The argument which is particularly disturbing and which is, in fact, the essence of the article is the assertion that investors who use the conventional value-of-rights formula do so on the basis of a rather rigid set of assumptions concerning earnings, dividends, price-earnings ratios, and others. If this is taken literally, then the proposition is false. For, given that an investor wishes to buy the stock of a particular company, i.e., at the given market price Ml he finds that this investment is more attractive than any other alternative use of his assets (just why he believes it is better is irrelevant); and, given that the stock is selling ex-rights, then it is perfectly rational to use the formula to determine whether it is more economical to purchase the stock directly or indirectly through the use of rights. Ignoring transaction costs, if the value yielded by the value-of-rights formula is greater than the current market price of the rights, then it is less expensive to buy the rights and exercise them. If the relationship is the reverse, then it is more economical to buy the stock directly. There is obviously nothing implied by this procedure with respect to earnings, dividends, and so forth. It is true that this particular use of the formula is not necessary for the purpose of making this decision. For the investor could adopt the alternative procedure of comparing the sum of the total current market value of the number of rights required to buy one share and the subscription price with the current market price of the stock. The action to be taken here is rather obvious. Moreover, it is quite apparent that traders can use the formula in the same way for arbitrage purposes. Again, it is not necessary that they do; but they can, and some undoubtedly do, use it in this way. This brings us to what I believe is the real issue and perhaps the source of the confusion. What is the precise meaning of the valueof-rights formula? In the case where stock is selling rights-on, the