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Hi, John,
thank you for the response to my previous questions.
further question is about the right issue price.
as far as I know that the right issue would not affect the shareholders’ wealth given they take up their right to buy the issued shares, but the issue price is still important factor to shareholders to accept the shares, according to the answer of examiner.
I thought if the wealth would not be affected by right issue thus the price is irrelevant, if the right were fully taken. what should be considered is the issued number at which the EPS would be diluted
is this right?regards.
In theory the total shareholders wealth will not be affected (although in practice it may well be affected).
The number of new shares issued will be either the number stated in the question or will be the total amount being raised divided by the issue price.
All of this is explained in my free lectures. The lectures are. a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
thank you.
is the right issue price important for existing shareholders?
because of the examiner’s answer for Tinep Co 12/14:’must set a price which is low enough to secure the acceptance of shareholders.’ I got a little confused with this.
if, theoretically, the shareholders wealth will not be affected, the share price may be irrelevant to make sure the existing shareholders to accept(take up the shares), isn’t it?Again, have you watched my free lectures?
The issue price has to be such as to encourage people to buy the shares. They could always buy more shares on the stock exchange, so they will not buy the rights issue if they have to pay more than they would have to pay to buy shares on the stock exchange.
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