Polecat plc has 18 million 0.50 ordinary shares in issue. The current stock market value of these
Question:
Polecat plc has 18 million £0.50 ordinary shares in issue. The current stock market value of these is £1.70 per share. The directors have decided to make a one-for-three rights issue at £1.25 each.
Julie owns 3,000 Polecat ordinary shares.
Assuming that the rights issue will be the only influence on the share price:
(a) What, in theory, will be the ex-rights price of the shares (that is, the price of the shares once the rights issue has taken place)?
(b) For how much, in theory, could Julie sell the ‘right’ to buy one share?
(c) Will it matter to Julie if she allows the rights to lapse (that is, she does nothing)?
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Step by Step Answer:
To solve this problem well first calculate the theoretical exrights price then determine the value of one right and finally analyze Julies options Giv...View the full answer
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