Healthy-life plc has been listed on the London Stock Exchange since 2010. The company has 12 million shares outstanding which are currently traded at £10.50 per share.

Healthy-life is planning to raise £25.2 million of new finance for a new project by making a rights issue. The 1 for 5 rights issue will be at a 25% discount to its current share price.

Required:

Ignoring regulations, explain why a company might have a rights offering rather than a general cash offer.

Calculate the number of new shares needed to be issued to raise the required £25.2 million.

Calculate the theoretical ex-rights per share price of Healthy-life plc commenting on the effect of right issues on share price.

Assume that you hold 25,000 Healthy-life’s ordinary shares. Explain why it is optimal for you to subscribe to the rights issue and show your financial position for each of the three outcomes available to you.

Answer rating: 100% (QA)

1 Reasons for a rights offering A company might choose a rights offering instead of a general cash offer for several reasons a Equity dilution control By issuing new shares through a rights offering e... View the full answer