A company has announced a rights issue of 1 new share for every 4 existing shares.
Relevant data:
* The current market price per share is $10.00.
* Rights are to be issued at a 20% discount to the current price.
* The rate of return on the new funds raised is expected to be 10%.
* The rate of return on existing funds is 5%.
What is the yield-adjusted theoretical ex-rights price?
Give your answer to two decimal places.

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The Board of Directors of Company T is considering a rights issue to fund a new investment opportunity which has a zero NPV.
The Board of Directors wishes to explain to shareholders what the theoretical impact on their wealth will be as a result of different possible actions during the rights issue.
Which THREE of the following statements in respect of theoretical shareholder wealth are true?

• A.If shareholders exercise their full rights there will be no impact on their wealth.
• B.If shareholders sell their entire rights entitlement there will be no impact on their wealth.
• C.If the shareholders allow their rights to lapse (do nothing) there will be no impact on their wealth.
• D.If the shareholders only partially exercise their rights and allow the remainder to lapse there will be no impact on their wealth.
• E.If shareholders partially exercise their rights and sell the remaining rights entitlement there will be no impact on their wealth.

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A company wishes to raise new finance using a rights issue to invest in a new project offering an IRR of 10% The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* The company's WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.

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A listed company is planning to raise $21.6 million to finance a new project with a positive net present value of $5 million. The finance is to be raised via a rights issue at a 10% discount to the current share price. There are currently 100 million shares in issue, trading at $2.00 each.
Taking the new project into account, what would the theoretical ex-rights price be?
Give your answer to two decimal places.

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Company A is proposing a rights issue to finance a new investment. Its current debt to equity ratio is
10%.
Which TWO of the following statements are true?

• A.Company A's current low gearing ratio may require a rights issue rather than a debt issue to finance the new project.
• B.The issue price has to be at least 20% below the pre-rights share price.
• C.According to Modigliani and Miller's Theory of Capital Structure with tax, the rights issue will result in a lower cost of equity for Company A.
• D.The issue price of new shares should be set to guarantee the full take up of shares offered.
• E.The actual ex-rights price may be higher than the theoretical ex-rights price due to the value created from the project.

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