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
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 8P
Related questions
Question
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 7 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning