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Q.ABC Plc has issued 10 million share with a current market price of £4.0 per share. ABC plc plans to raise £9 million from a right issue at a 25% discount to the current market price. Which of the following is nearest to the theoretical ex rights price per share.
My answer is 3.77, One of my colleague explained it to me but i am unable to understand
Why, again, are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and workings!!
And why have you not watched my free lectures on rights issues? You cannot expect me to type out all my lectures here!!!
The new share are being issued at $3 per share, and therefore the are issuing 3 million shares.
It is therefore a 3 for 10 rights issue.So the TERP is (( 10 x $4) + (3 x $3) / 13 = $3.77 and your answer is therefore correct 🙂
Q1. The following information relates to ABC plc.
£m Market ValuesOrdinary shares (nominal value £1) 20.0 £5.10 per share
9% Irredeemable bonds (nominal value £100) 9.5 £98.30 per bond
ABC plc has a cost of equity of 10.0% and pays profit tax at 28% per year. What is the market value weighted average cost of capital of ABC plc?
MY ANWSER IS 9.71 (IS IT CORRECT)
Q2. ABC plc’s current cum-div share price is £2.68 and the company has announced a dividend of 14p. Which of the following is nearest to the rate investors expect its dividends to grow in the future, if the current share price is thought to be a fair one and if investors require a rate of return of 15%?
MY ANSWER IS 9.0% (IS IT CORRECT)Q3. The current ex div market price of the ordinary shares of ABC plc is £5.24 and a dividend of 42p will be paid next year. Dividend growth is expected to be 5% per year for the foreseeable future. What is the cost of equity of ABC plc?
MY ANSWER IS 13%. (iS THIS ANSWER CORRECT)
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