Callum & Tranquillo Constructions (CTC) Limited is an all equity financed company. It has just announced a rights share offer, with the following details. The company currently has 100 million shares on issue (before the rights offer), shares are trading in the market at $10 each. The company needs to raise $200 million in additional capital. The new shares (offered via the rights) are offered at a 20 percent discount to current share price. As an existing investor you own 1,000 shares in the company.

Answer the following:

a) What is the number of new shares issued as result of the share offer?

b) What are the terms of the rights offer?

c) What is the value of one right to subscribe for new shares? What is the value of the right per each share held?

d) Present a numerical example and comment on the pre-offer and the post-offer wealth of a shareholder who held 1,000 shares at the time of the offer announcement (assume that this shareholder participated in the rights share offer to the full extent of the rights awarded to the shareholder).

Answer rating: 100% (QA)

a The number of new shares issued as a result of the share offer is 200 million b The terms of the ... View the full answer