Serbanika Limited has issued share capital of 2 million common shares, par value $1.00. The board of the company has decided it needs to raise $1million, net of issue costs, to finance a new product. It has been suggested that the additional finance be raised by means of a 1-for-4 rights issue. The issue price will be at a 20% discount to the current market price of $2.75 per share and issue costs are expected to be $50 000. Calculate and explain the following: (i) The theoretical ex-rights price per share; (ii) The net cash raised;

Serbanika Limited has issued share capital of 2 million common shares, par value $1.00. The board of the company has decided it needs to raise $1million, net of issue costs, to finance a new product. It has been suggested that the additional finance be raised by means of a 1-for-4 rights issue. The issue price will be at a 20% discount to the current market price of $2.75 per share and issue costs are expected to be $50 000. Calculate and explain the following: (i) The theoretical ex-rights price per share; (ii) The net cash raised;

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

Section: Chapter Questions

Problem 1PS

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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?
XYZ Ltd has 900,000 shares outstanding at current market price of $ 130 per share. The company needs $ 22,500,000 to finance its proposed expansion. The board of directors has decided to issue rights for raising the required funds. The subscription price has been fixed at $ 75 per share. Required: (a) How many rights are required to purchase one new share? (b) What is the price of one share after the rights issue (Ex-right price)? (c) Compute the theoretical value of each right| 19:32
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. 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 You already calculate and give me a solution but im not sure how to calculate the value of the rights
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.
Quantum Tech Corp. is currently selling at $25 per share. There are 4 million shares outstanding. The company is planning to raise $8 million to finance a new project. Assuming 100% exercise of rights, what are the (1) ex-rights stock price, (2) the value of a right, and (3) the appropriate subscription prices under the following scenarios? a. Two shares of outstanding stock are entitled to purchase one additional share of the new issue. b. Four shares of outstanding stock are entitled to purchase one additional share of the new issue. c. In scenario b, how far could the stock price fall before shareholders would be unwilling to exercise their rights?
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.
Disturbed Corporation needs to raise $59 million to fund a new project. The company will sell shares at a price of $24.10 in a general cash offer and the company's underwriters will charge a spread of 7.5 percent. The direct flotation costs associated with the issue are $825,000 and the indirect costs are $485,000. How many shares need to be sold?
Mvela Ltd has 100 000 shares in issue. The shares are currently trading at R100 per share. Mvela needs a new factory. The factory is expected to cost R900 000. The management decided to finance the construction of the new factory using a rights issue at R 90 per share. Required: Explain how this decision will affect the company’s share price; Support your answer with calculations where possible.
The New Word Corporation has 1,000,000 shares outstanding at $45/share. If the firm wishes to raise $15.00 million at a subscription price (North American rights offering) of $30/share, calculate the value of a right.
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?
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…
Jasmine Flowers (JF) must raise $345 million for its future expansion. To do so, JM expects to issue new common stock. Investment bankers have informed the company that the flotation costs will be 6.5% of the total amount issued and that the company will incur another $576,000 in costs associated with the issue. JF can issue its stock for $55 per share. How many shares JF must sell to net the $345 million it needs?

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