Hanging Valley plc has issued share price of 2m ordinary shares, nominal value £1. The board of the company has decided it needs to raise £1m, net of issue costs, to finance a new product. It has been suggested that additional finance 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. Required: Calculate and explain the following: (a). the theoretical ex-rights price per share; (b). the net cash raised; (c). the value of the rights. (d). critically discuss the advantages and disadvantages of rights issue.
Hanging Valley plc has issued share price of 2m ordinary shares, nominal value £1. The board of the company has decided it needs to raise £1m, net of issue costs, to finance a new product. It has been suggested that additional finance 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. Required: Calculate and explain the following: (a). the theoretical ex-rights price per share; (b). the net cash raised; (c). the value of the rights. (d). critically discuss the advantages and disadvantages of rights issue.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Hanging Valley plc has issued share price of 2m ordinary shares, nominal value £1. The board of the
company has decided it needs to raise £1m, net of issue costs, to finance a new product.
It has been suggested that additional finance 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.
Required:
Calculate and explain the following:
(a). the theoretical ex-rights price per share;
(b). the net cash raised;
(c). the value of the rights.
(d). critically discuss the advantages and disadvantages of rights issue.
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