- 6 Marks
AFM – May 2016 – L3 – Q4d – Sources of finance and cost of capital
Calculate the theoretical ex-right price, value of rights, and analyze the effects of a rights issue on a shareholder's wealth.
Question
d) Agoro Limited has issued 75,000 equity shares of GH¢0.10 each. The current market price per share is GH¢24. The Company has decided to make a rights issue of one (1) new equity share at a price of GH¢16 for every four (4) shares held.
Required:
i) Calculate the theoretical ex-right price per share.
(2 marks)
ii) Calculate the theoretical value of the right. (1 mark)
iii) Mr. Crentsil currently holds 1,000 shares in Agoro Limited, show the effect of the rights issue on his wealth assuming he sells the entire right. (2 marks)
iv) Calculate the effect if Mr. Crentsil does not take any action and ignores the right issue. (1 mark)
Find Related Questions by Tags, levels, etc.
- Tags: Equity Financing, Rights Issue, Shareholders, Theoretical Ex-Right Price
- Level: Level 3
- Topic: Sources of finance and cost of capital
- Series: MAY 2016
