[waleadesola]

effect of rights issue on her wealth if

1. she does nothing:
current wealth: 1200*8 = 9600
after rights issue: 1200*7.5(TERP) = 9000
she lost 600 in her wealth

2. she takes the right:
market value of shares 1200*7.5(TERP) = 9000
sale value of right 1200*0.5(being value of right on existing share) = 600
total wealth after right issue = 9600
current wealth 1200*8 = 9600
she is not worse off nor better off

3. she sells her right:
market value of existing share 1200* 7.5 = 9000
proceeds on sale of rights 1200*0.5 = 600
total wealth = 9600
current wealth 1200*8 = 9600
she is not worse off nor better off

PLEASE CHECK THIS TO CONFIRM ITS CORRECT

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