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
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.
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