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. I have the solution i just dont know howyou calculate the value of the rights. Its just written value of the rights 2.20 but im not sure how you got that Thank you

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. I have the solution i just dont know howyou calculate the value of the rights. Its just written value of the rights 2.20 but im not sure how you got that Thank you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

See similar textbooks

Similar questions

Hanging Valley plc has issued share price of 2m ordinary shares, nominal value £1. The board of thecompany 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 costsare 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.
Hoobastink Mfg. is considering a rights offer. The company has determined that the ex- rights price will be $61. The current price is $68 per share, and there are 10 million shares outstanding. The rights offer would raise a total of $60 million. What is the subscription price?
13. James Plc has 4 million, £1 ordinary shares in issue. The board of the company has decided it needs to raise approximately £2 million, net of issue costs, to finance a new project by means of a 1 for 4 rights issue. The issue price will be at 15% discount to the current market price of £2.59 and the issue costs are expected to be £100,000. Required: a) Calculate and explain the following: i. The theoretical ex rights price per share ii. The net cash raised iii. The value of the right per share b) Using the information provided, illustrate (show all your workings) and discuss the effect of the proposed rights issue on an investor who owns 10,000 ordinary shares of James Plc, given they: i. Take up the rights ii. Sell the rights iii. Do nothing, allowing the rights to lapse c) Identify and discuss other methods which could be used to raise new equity finance.
The management of LTTP Corp. is preparing for issuing equity to fund a new project. Rights offeris used. The company has determined that the ex-rights price would be $53. The current price is $58per share, and there are 10 million shares outstanding. The rights offer would raise a total of $45million. What is the subscription price? can you handwrite it please
The management of LTTP Corp. is preparing for issuing equity to fund a new project. Rights offeris used. The company has determined that the ex-rights price would be $53. The current price is $58per share, and there are 10 million shares outstanding. The rights offer would raise a total of $45million. What is the subscription price?
I need the last 2 questions
please answer the question as in attached file asap. thanks
ABC SAOG needs RO. 5 million for the installation of a new factory. The new factory expects to yield annual Earnings Before Interest and Tax (EBIT) of RO. 600,000. In choosing a financial plan, ABC SAOG has an objective of maximizing earnings per share (EPS). The company proposes to issue ordinary shares and raise the debt of RO. 500,000, RO. 1,500,000 or RO. 2,000,000. The current market price per share is RO. 350 and is expected to drop to RO. 150 if the funds are borrowed in excess of RO. 1,800,000. Funds can be borrowed at the following rates: Up to RO. 500,000 at 7% Over RO. 500,000 to RO. 2,000,000 at 9% Over RO. 2,000,000 at 14% Assuming a tax rate of 40%, advise the company.
ABC Ltd. needs Rs 500 lacs for an expansion plan that is expected to yield 15% return on assets. Currently its return on asset is 12% and the firm is all equity funded. For expansion it has alternatives of funding the entire expenditure either through debt or equity. Following information is available: Nos. of shares already existing 20 lacs Price at which the shares can be issued (Rs) Rs 50 Existing interest Rs 30 lacs Interest rate on debt 10% Tax rate 40% Find out the new EPS with equity and debt financing. Also find at what level of earnings the firm is indifferent to mode of financing.
SABC Limited has the following information: The market values of the different components are: Debt (long-term loans): R200m. and Ordinary Shares: R500m. The current (market related) cost of the different components was already calculated as being. Debt (long-term loan) 6% (after-tax) and Ordinary Shares: 14%. Required: Calculate the WACC of SABC Limited by: a. Using the mathematical formula b. Completing the WACC table
IRIS Corp. has determined its optimal capital structure as follows. Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the…
The directors of Gamma plc are investigating the possibility of launching a new product line which will require an initial investment of £2,400,000. The following is an extract from the Statement of Financial Position of Gamma plc for the year ended 31 December 2012: Creditors due in more than one year 6% Debentures £1,600,000 Long-term loan £400,000 Capital and reserves Issued share capital (4 million shares of 25p each) £1,000,000 The following information is also available: The authorized share capital is 8 million shares; The current market price per share at 31 December 2012 was 162p ex-dividend; The last dividend payment was 17 pence per share; Dividends are expected to grow at a constant rate of 7% per year; The current market price of debentures is £95 (ex-interest) and interest is payable each year on 31 December. The debentures are irredeemable; The interest rate on the long-term loan is 0.5 percentage points above LIBOR, which…