Nile plc currently has 6,000,000 ordinary shares in issue, valued at $3 each, and the company has annual earnings equal to 25% of the market value of the shares. A one for four rights issue is proposed, at an issue price of $2.50. If the market continues to value the shares on a price/earnings ratio of 4, what would the value per share be if the new funds are expected to earn, as a percentage of the money raised: a) 20% b) 25% c) 30% How do these values in (a), (b) and (c) compare with the theoretical ex-rights price? Ignore issue costs

Nile plc currently has 6,000,000 ordinary shares in issue, valued at $3 each, and the company has annual earnings equal to 25% of the market value of the shares. A one for four rights issue is proposed, at an issue price of $2.50. If the market continues to value the shares on a price/earnings ratio of 4, what would the value per share be if the new funds are expected to earn, as a percentage of the money raised: a) 20% b) 25% c) 30% How do these values in (a), (b) and (c) compare with the theoretical ex-rights price? Ignore issue costs

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 12P

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