Lexbel plc generates earnings after tax (PAT) of 20% on shareholders’ funds. Its current capital structure is as follows: Ordinary shares of 50p each £300,000 Reserves £400,000 Total: £700,000 The board of Lexbel plc wishes to raise £180,000 from a rights issue in order to expand existing operations. Its return on shareholders’ funds will be unchanged. The current ex-dividend market price of Lexbel plc is £1.90. Three different rights issue prices have been suggested by the finance director: £1.80, £1.60 and£1.40. Determine the form of the issue for each rights issue price

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Lexbel plc generates earnings after tax (PAT) of 20% on shareholders’ funds. Its current capital structure is as follows:

Ordinary shares of 50p each £300,000

Reserves £400,000

Total: £700,000

The board of Lexbel plc wishes to raise £180,000 from a rights issue in order to expand existing operations. Its return on shareholders’ funds will be unchanged. The current ex-dividend market price of Lexbel plc is £1.90. Three different rights issue prices have been suggested by the finance director: £1.80, £1.60 and£1.40.

Determine the form of the issue for each rights issue price

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