Napoleon Dynalite plc is a high-quality torch manufacturer based in the UK. They are looking to raise new equity finance to fund a new investment in a new ultra-bright high-performance torch. The company is looking to raise £50 million. The current share price is £4.27 (ex-div) and the company has 29.9 million shares already in issue. Issue costs are 2% and the rights shares will be issued at a 20% discount.

 

It is expected that the project will increase the company’s Profit Before Tax by £9m for the foreseeable future. The company pays tax at an annual rate of 19% and its current EPS is 45p.

 

Required:

 

(a)       For the proposed rights issue, calculate:

           

1.       The form the rights issue should take
2.       The theoretical ex-rights price (TERP)
3.       Value of the right per share           

                                                                                                                                    (6 marks)

(b)       If it is expected that shareholders will apply the company’s current P/E ratio to the company’s earnings after the project:

 

1. Calculate the expected share price after the rights issue has been completed
2. Comment on whether the company should have gone ahead with the project

                                                                                                            (7 marks)

(c)       Explain how you would go about testing whether the London Stock Exchange is semi-strong form efficient.

Answer rating: 100% (QA)

No of right Shases to be issned for yaise f50miio Answer Computu tlon ... View the full answer