What is the pro rata basis of the rights issue offer

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Reference no: EM132958035

Berkman Engineering Ltd initiated an ambitious research and development (R&D) project aiming to create a unique technology to boost their competitive advantage against peer firms in the field of hydrographic surveying. The R&D project was largely financed by the issuance of corporate bonds worth $350 million. The COVID-19 outbreak has caused severe disruptions to the progress of the project, which hence requires an extra funding of $250 million. To meet the additional budget requirement, Berkman Engineering Ltd has decided to conduct an equity issuance in the form of a renounceable rights issue offer to shareholders. The issue price of a new share is at 12.18% discount of the current share price of $20.00.

Given that each right is currently traded at $2.03:

Problem i. What is the pro rata basis of the rights issue offer? (i.e., how many existing shares does it take to obtain the right to subscribe for a new share?).

Problem ii. What is the theoretical ex-rights share price of Berkman Engineering Ltd?

Reference no: EM132958035

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