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Number of rights required to purchase a new share

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Reference no: EM131175224

Ujuzi Limited wishes to raise finance to cater for the purchase of new fixed assets, as its sales level has greatly increased in the recent years, and the demand for its products is expected to increase for the foreseeable future. The company has 900,000 outstanding shares which are currently trading in the stock exchange at Sh.130 a share. The finance manager estimates that the fixed assets will cost Sh.22,500,000 and he has convinced the board of directors to raise the money through a rights issue. The board has set the subscription price at Sh.75 per share.

Required:

  • The number of rights required to purchase a new share.
  • The price of one share after the rights issue.
  • The theoretical value of the rights if the shares are sold ex-right.
  • The effect on a shareholder's wealth if he decides neither to exercise nor sell the right.

Reference no: EM131175224

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