At its meeting on 25th May 2012, the Board of Directors of Guardian Holdings Limited, a publicly-traded

Fantastic news! We've Found the answer you've been seeking!

Question:

At its meeting on 25th May 2012, the Board of Directors of Guardian Holdings Limited, a publicly-traded company listed on the Ghana Stock Exchange resolved to make a rights issue of one new share for every nineteen ordinary shares then held at a price of GH¢40 per share each to existing shareholders, in the proportion in which they held shares at the record date of the offer. The company offered to issue 10,000,000 new ordinary shares of the Company at the subscription price to raise money to repay short-term debt, thus reducing its leverage ratio to about 35%. The price of the shares at the time of the rights offering was GH¢45 and the ex-right date was fixed at August 9, 2012. The firm's tax rate is 30%.
i. Estimate the value of one right, the number of shares currently outstanding, and the theoretical price of the stock on August 9, 2012.
ii. Mr. Gyimah who owns 437 shares is concerned that the rights issue will lead to voting dilution and economic dilution of his investment in the company. Suggest two courses of action to Mr. Gyimah that will address his concerns and show that as long as he acts on your advice, the effects he is concerned about will not materialize.