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This is part of the question
Bar Co. plans to make a rights issue and to use the funds raised to pay off some of its debts. The rights issue will be at a 20% discount to its current ex-dividend share price of $7.50 per share and Bar Co plans to raise $90 Million.
In the Balance Sheet
Ordinary share ($1 nominal) $m 60
I understand the ex right price = MV of shares already issues + Proceeds from new shares / # of shares in issue after the right issue
But if you want to work it out as
Existing : x shares * $7.50 =
Rights : x shares * ($7.50*.8) =How do you arrive at the right issue of 1 for 4 basis stated in the examiner answer sheet.
Thanks
The question tells you how much they want to raise ($90M)
They also tell you what the issue price will be ($7.50 – 20% = $6)So…..we know how many shares they will issue ($90M / $6 = 15M).
We know how many shares are currently in issue (from the SOFP it is 60M)
Therefore it must mean that the rights issue is 15/60 or 1 for 4.
🙂
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