Right issue shares

The shares don't lapse because they are only issued when the rights are taken up. If the person with the rights does not want to take up the offer and buy the shares, then he/she can sell them to someone else (the rights are traded on the stock exchange) and the someone else can then take up the rights and pay a reduced price for new shares. The AFM examiner does not ask for calculations regarding the value of the rights because they were examined in detail in Paper FM. If it does interest you then watch the relevant Paper FM lecture where I explain what happens in detail.

So you are saying that right issue shares will only be issued to the existing shareholder if he takes up the right. other wise shares will not be issued to that particular existing shareholder and if he doesn't take the shares but other existing shareholders take there part of right issue than that particular existing shareholder will have his share price diluted due to right issue??

Rights issues are always issued at a price lower than the current market value. Therefore after the rights issue the MV per share will be lower thank it was before the issue. However, if the shareholder takes up the rights he ends up owning more shares (at a lower price per share), has paid to take up the rights, and in theory is overall no better or no worse off. If the shareholders does not take up the rights but sells the rights letter to someone else, he ends up owning the same number of shares as he did before and the MV per share will be lower. However he will have received cash from selling the rights and again in theory ends up overall no better or no worse off. Again. if you want to see the numbers involved that show this (despite the fact that they are not asked for in Paper AFM) watch my Paper FM lectures working through Chapter 11 of our free Paper FM lecture notes.

Ok sir thank you

You are welcome :-)