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ACCA FM · Guided practice (Show me how)

Chapter 11: Sources of finance – equity

Rights issues and shareholder wealth

Malik plc has a current share price of $8.00 per share. It announces a rights issue of 1 new share for every 3 existing shares, at $6.00 per new share.

Mrs X owns 1,200 shares and takes up 50% of the entitlement, selling all the remaining rights at their theoretical value. Assume the issue is fully subscribed, no transaction costs and no other change in company value. All money amounts are in dollars.

  1. (a) Ex-rights share price

    Calculate Malik plc's theoretical ex-rights price per share.

  2. (b) Rights values

    Calculate the theoretical value of Malik plc's rights per new share and per existing share.

  3. (c) Shareholder wealth

    Calculate Mrs X's current share wealth, new shares taken up, shareholding value after the issue, net cash change and new net wealth.

Opening this exercise…