Rainy Ltd is a listed company that operates in the construction industry. On 1 March 2021,...
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Rainy Ltd is a listed company that operates in the construction industry. On 1 March 2021, Rainy Ltd paid a dividend to its shareholders of $0.20 per share. This dividend is expected to grow indefinitely at a rate of 3% per annum. A month later the company announced a three-for-five renounceable rights issue at a price of $6.52. The required rate of return for all investors in the market is 6% p.a. (a) Calculate the theoretical share price of Rainy Ltd at March 1, 2021. (3 marks) (b) Assuming your answer in part (1) is the market share price on the rights announcement day. All other things being equal, calculate the theoretical value of the ex- rights share price. (3 marks) (c) Explain if the right could be traded if the rights issue was non-renounceable. (2 marks) Rainy Ltd is a listed company that operates in the construction industry. On 1 March 2021, Rainy Ltd paid a dividend to its shareholders of $0.20 per share. This dividend is expected to grow indefinitely at a rate of 3% per annum. A month later the company announced a three-for-five renounceable rights issue at a price of $6.52. The required rate of return for all investors in the market is 6% p.a. (a) Calculate the theoretical share price of Rainy Ltd at March 1, 2021. (3 marks) (b) Assuming your answer in part (1) is the market share price on the rights announcement day. All other things being equal, calculate the theoretical value of the ex- rights share price. (3 marks) (c) Explain if the right could be traded if the rights issue was non-renounceable. (2 marks)
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Rainy Ltd Share Price Analysis a Theoretical Share Price on March 1 2021 1 Use the Dividend Discount ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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