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Drumlin Co has $5m of $0·50 nominal value ordinary shares in issue. It recently announced a 1 for 4 rights issue at $6 per share. Its share price on the announcement of the rights issue was $8 per share.
What is the theoretical value of a right per existing share?
I have calculated 1.6 as the value of right per share however the answer given by the ACCA examination team is 0.4 which I am unable to follow.
Please advise what’s the correct answer.
The question asks for the value of a right per existing share.
Since it needs 4 existing shares to get 1 new share, the value per existing share is 1.60 / 4 = 0.40.
Again, this is all explained in my free lectures – you cannot expect me to type out all my lectures here 🙂
Thank you Sir. I am going through the lectures now so all sorted now. Sorry for being a pain:(
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