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Hanging Valley plc has issued share capital of 2 million ordinary sharespar value £100 The board of the company has decided it needs to raise £1m net of issue costs to finance a new product

Hanging Valley plc has issued share capital of 2 million ordinary shares, par value £1.00. The board of the company has decided it needs to raise £1m, net of issue costs, to finance a new product.

(a) It has been suggested that the additional finance be raised by means of a 1 for 4 rights issue. The issue price will be at a 20 per cent discount to the current market price of £2.75 and issue costs are expected to be £50 000. Calculate and explain the following:

(i) the theoretical ex-rights price per share;

(ii) the net cash raised;

(iii) the value of the rights.

(b) Is the underwriting of rights issues an unnecessary expense?

 

 

2.Brag plc is raising finance through a rights issue and the current ex-dividend market price of its shares is £3.00. The rights issue is on a 1 for 6 basis and the new shares will be offered at a 20 per cent discount to the current market price.

(a) Discuss the relative merits of the following ways of raising new equity finance:

(i) a placing;

(ii) a public offer.

(b) Explain why, in general, rights issues are priced at a discount to the prevailing market price of the share.

(c) Calculate the theoretical ex-rights share price of Brag plc and the value of the rights per share using the above information.

(d) Discuss the factors that determine whether the actual ex-rights share price is the same as the theoretical ex-rights price.

 

 

i live in iran and from here i cant pay to download the solution, so if you send me the answers of these 2 questions to my gmail i can be thankful.thank you

 

Apr 01 2020 View more View Less

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