Healthy-life plc has been listed on the London Stock Exchange since 2010. The company has 12 million
Question:
Healthy-life plc has been listed on the London Stock Exchange since 2010. The company has 12 million shares outstanding which are currently traded at £10.50 per share.
Healthy-life is planning to raise £25.2 million of new finance for a new project by making a rights issue. The 1 for 5 rights issue will be at a 25% discount to its current share price.
Required:
Ignoring regulations, explain why a company might have a rights offering rather than a general cash offer.
Calculate the number of new shares needed to be issued to raise the required £25.2 million.
Calculate the theoretical ex-rights per share price of Healthy-life plc commenting on the effect of right issues on share price.
Assume that you hold 25,000 Healthy-life’s ordinary shares. Explain why it is optimal for you to subscribe to the rights issue and show your financial position for each of the three outcomes available to you.
Accounting and Finance An Introduction
ISBN: 978-1292088297
8th edition
Authors: Peter Atrill, Eddie McLaney