Finesse plc. is one of the major food suppliers in the UK and has been listed on the London Stock Exchange for 20 years. The following data have been provided to the financial manager:

Total number of shares: 37.5 million

Market price: £48/ share

The company is planning to raise £360 million to finance the creation of a new venture by making a rights issue. The 1 for 5 rights issue will be at a 25% discount to its current share price.

Required:

(a) Calculate the number of new shares needed to be issued?

(b) Discuss the effects of right issues on share price. Show your workings.

(c) An investor is holding 50,000 Finesse’s ordinary shares. Advise this investor whether he should take up the rights or let the rights issue lapse (shows your workings).

(d) Discuss why rights issue has been a popular form of capital raising in times of crisis.

Answer rating: 100% (QA)

a To raise 360 million Finesse plc plans to issue new shares at a 25 discount to the current market price of 48share Therefore the issue price of the new shares will be Discounted price 48 1 25 36 To ... View the full answer