A company's shares are currently trading at ₹100 (cum-rights price). The company announces a rights issue in the ratio 1:4 (one new share for every four existing shares) at an issue price of ₹60 per share. What is the theoretical ex-rights price?

The theoretical ex-rights price = [(Number of existing shares × Cum-rights price) + (Number of new shares × Issue price)] ÷ Total shares after issue. Here: (4 × ₹100) + (1 × ₹60) = ₹400 + ₹60 = ₹460. Total shares = 5. Ex-rights price = ₹460 ÷ 5 = ₹92. The value of one right = ₹100 − ₹92 = ₹8 per existing share (or ₹32 per new share entitlement, since 4 rights are needed for one new share). The ex-rights price reflects the post-issue equilibrium price assuming immediate adjustment. This is a straightforward mental-math calculation designed to test understanding of how a rights issue dilutes the share price.