Dec 09 Exam Q3b

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December 8, 2010 at 12:38 am #46750
karenlaing
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I cannot see where the extra profit etc has come from – can someone explain?, and I thought when there was a rights issue it did not change shareholders wealth…..
This is the worst past exam I have ever seen …..
December 8, 2010 at 12:53 am #73324
karenlaing
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I can see where the profit came from now – but what about shareholders wealth ?
December 8, 2010 at 2:22 am #73325
bridmw
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The rights issue by itself doesn’t change the shareholders wealth. The increased profits due to the return on the project being higher than the cost of capital are what increases the wealth of the shareholder. The PER is used to give an estimate of what that change might be.
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