Question 5 (this question has three parts, (a), (b) and c) (3 + 3 +3 = 9 marks) A corporation is to make a pro-rata rights issue to its existing shareholders on a 2:6 basis. The issue price is $2.50 per share and the current market price is $2.85. The financial advisers to the corporation have recommended the use of an underwriting facility. The board of directors has noted that the underwriting facility has an out-clause if the market price drops below $2.35. Having regard to the above information, explain what is: (a) A pro-rata rights issue? Answer: 18 ) (b) An underwriting facility and what are the benefits to a corporation using such a facility? Answer: (C) An out-clause and how does it work in the above context