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sir please explain how to get the right answer?
A UK private company has one million ordinary shares of £1 nominal value. Their estimated value as an investment is £2.20 each. The company wishes to raise a further £600,000 from a rights issue.
The directors decide to offer the new shares at £2.00 each to the existing shareholders and estimate that 60% of the shares offered will be bought.
Which of the following rights issues should be offered?
(a) 1 for 2(b) 2 for 5
(c) 3 for 4
(d) 3 for
If they are issuing shares at $2 each, then they need to sell 600,000/2 = 300,000 shares.
Since only 60% of the shares will be bought, it means they actually need to offer 300,000/60% = 500,000 shares,
There are currently 1M shares in issue, to the right issue must be 500,000 for 1M, or 1 for 2.
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