Question
A company has a current market price of ₹500 per share. It announces a Rights Issue in the ratio of 1:4 at an offer price of ₹400. What is the Theoretical Ex-Rights Price per share?
Solution
Value of 4 existing shares: 4×500=2,000 Price of 1 new rights share: 1×400=400 Total value after issue: 2,000+400=2,400 Total number of shares: 4+1=5 Theoretical Ex-Rights Price = Total value/total no. of shares = 2,400/5 = 𝟒𝟖𝟎
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