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Good day, I need help with the following question.
Company X wishes to raise $100 million through rights issue. Company X has 100 million shares in issue at $2.50 per share. A subscription price of $2.20 under plan X and $1.80 under plan Y is suggested.
a) How many shares is a shareholder required to hold to purchase a new share?
b) How many shares a issued under both plans
c) Which plan is preferable to the company and which would you recommend.This question has really confused me as I am unable to determine (a)
Thanking you in advance.
Since they are going to raise $100M, under plan X they will need to issue 100M / 2.20 = 45,454,545 shares.
Since there are currently 100M shares in issue, it means that for every 1 new share they buy, they will need to currently hold 100M/45,454,545 = 2.20 existing shares.
Thank you so much for your prompt response. Your answer is exactly the same as mine for Plan X
Thank you once again.
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