Question: Giant Resources is proposing a 1 for 10 pro-rata renounceable rights issue. There are currently 1,000,000 shares outstanding at $15 each. In accordance with the

Giant Resources is proposing a 1 for 10 pro-rata renounceable rights issue. There are currently 1,000,000 shares outstanding at $15 each. In accordance with the rights issue there will be 100,000 new shares offered at $12.50 each.

Required:
(a) Calculate the theoretical ex-rights share price of Giant Resources.
(b) Calculate the value of a right in Giant Resources.
(c) Theoretically, what should happen to the Giant Resources share price on the ex-rights date? Explain.

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