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Old 05-09-2016, 11:43 AM
wongkh1992 wongkh1992 is offline
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Join Date: May 2016
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Default Equity Finance ( Right issue share question)

Morgan plc has 20 million ordinary shares of 50p each in issue. The shares are currently trading on the stock market at $1.50. An investment opportunity has recently been identified which will need to be financed by existing shareholders. It has been decided by the board of directors that an additional $10 million will be raised by rights issue of 1 for 5 to support the investment. The new shares will be issued at 20% discount of the current share prices.

Question : Keith , a shareholder who owns 10000 shares is undecided on what action to take. As an investment consultant , you have been approached by Keith for advice on the proposal right issue. Calculate how Keith's wealth will be affected if he takes each of the following decisions

i) Exercises the right
ii) Sells all the rights
iii) Allows the right offer to lapse

This is the last part of the question which I have no idea to do it. The previous part was to find theoretical ex-right price and value of share. I have no problem on that and I really need help and explanation for this part of the question . Thank you.
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