QUESTION TWO A. What is a financial market? B. The directors of a company are planning to undertake a rights issue. Describe the factors that should be taken into account in deciding whether to have this issue underwritten instead. C. D Plc is in the process of making a 1 for 4 rights issue. The rights letters have just been sent to shareholders. The company currently has 20m K1 shares in issue and the current market price is K4.50 per share. The rights letter gives shareholders the right to buy their new shares for K3.50 each. D Plc plans to use the cash raised to build a major extension to its factory, thereby doubling production capacity. The finance director has received an angry letter from a shareholder. The shareholder complains that he cannot afford to invest in new shares. He contends that he is likely to suffer a loss because of the fact that the market will be flooded with cheap shares as the issue will almost certainly decrease the value of his holding. Required: I. Calculate the value at which the share price is likely to settle after the rights issue. II. Explain whether the shareholder's complaint is justified with particular reference to the difference between the rights price and the current market price.

QUESTION TWO A. What is a financial market? B. The directors of a company are planning to undertake a rights issue. Describe the factors that should be taken into account in deciding whether to have this issue underwritten instead. C. D Plc is in the process of making a 1 for 4 rights issue. The rights letters have just been sent to shareholders. The company currently has 20m K1 shares in issue and the current market price is K4.50 per share. The rights letter gives shareholders the right to buy their new shares for K3.50 each. D Plc plans to use the cash raised to build a major extension to its factory, thereby doubling production capacity. The finance director has received an angry letter from a shareholder. The shareholder complains that he cannot afford to invest in new shares. He contends that he is likely to suffer a loss because of the fact that the market will be flooded with cheap shares as the issue will almost certainly decrease the value of his holding. Required: I. Calculate the value at which the share price is likely to settle after the rights issue. II. Explain whether the shareholder's complaint is justified with particular reference to the difference between the rights price and the current market price.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter1: Role Of Accounting In Society

Section: Chapter Questions

Problem 15Q: According to a company press release, on January 5, 2012, Hansen Natural Corporation changed its...

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