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Drumlin Co has $5m of $0.50 nominal value ordinary shares in issue.It recently announced a 1 for 4 rights issue at $6 per share .It’s share price on the announcement of the rights issue was $8 per share .
What is the theoretical value of a right per existing share ?
Answer: $ 0.40
I cannot understand why you cannot find the answer, since both the questions and answers for this exam are on the ACCA website!!
The theoretical ex-rights price = ((4 x $6) + $8)/5 = $6.40
Therefore the value of a right = 8 – 6.40 = 1.60 for every new share, or 1.60/4 = 0.40 for every existing share.
This is all explained in my free lectures. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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