rand plc generates profit after tax of 15 per cent on sl apital structure is as follows: Ordinary shares of 50p each 2 Reserves 4
rand plc generates profit after tax of 15 per cent on sl apital structure is as follows: Ordinary shares of 50p each 2 Reserves 4
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 12P
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Transcribed Image Text:I Brand plc generates profit after tax of 15 per cent on shareholders' funds. Its current
capital structure is as follows:
£
Ordinary shares of 50p each
200,000
400,000
600,000
Reserves
The board of Brand plc plans to raise £160,000 from a rights issue to expand existing
operations. Return on shareholders' funds will be unchanged. The current ex dividend
share price of Brand plc is £1.90. Three different rights issue prices have been suggested
by the finance director: £1.80, £1.60 and £1.40.
Calculate the number of shares to be issued, the theoretical ex-rights price, the
expected earnings per share and the form of the issue for each issue price. Comment on
your results.
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