Balmorals plc is a well-established company that has run into difficulty in recent years. Its management has recently undertaken a review of its activities and has decided to proceed with a radical restructuring of the business. To restore the company’s financial stability, it has been decided it will be necessary to raise £160 million through a rights issue. After consulting its investment bankers the company is planning to make the rights issue at a discount of 20 per cent to the current market price of £5. The company has 100 million shares outstanding.

(a) What is the value of a right?

(b) What are the current terms of the rights issue?

(c) How would an investor with 10,000 shares be affected if they:

(i) Exercised their rights

(ii) Sold their rights

(iii) Tail-swallowed their rights?