5 Rights issue [LO 8] Maxwell Ltd is a listed biotechnology company. On 5 May 2014 it announced a 1-for-3 renounceable rights issue at a subscription price of $6.20 per share with an ex-rights date of 25 May. The company also announced that funds raised by the issue would be used to establish production facilities for its new anti- malaria drug that recently passed its final clinical trials. The share price rose from $6.90 to $7.05 after those announcements. The closing price of Maxwell shares on 24 May was $7 per share. CHAPTER NINE SOURCES OF FINANCE: EQUITY What is a renounceable rights issue? What is the most likely explanation for the share price rise on 5 May after the company's announcements? What do you expect the price of the shares to be on 25 May? Show all calculations. What is the theoretical value of a right? Show all calculations. Explain why the share price change from 24 May to 25 May does not reflect any change in shareholders' wealth