Rights. Associated Breweries is planning to market unleaded beer. To finance the

Question

Rights. Associated Breweries is planning to market unleaded beer. To finance the venture it proposes to make a rights issue with a subscription price of $10. One new share can be purchased for each two shares held. The company currently has outstanding 100,000 shares priced at $40 a share. Assuming that the new money is invested to earn a fair return, give values for the a. number of new shares b. amount of new investment c. total value of company after issue d. total number of shares after issue e. share price after the issue

Explanation / Answer

a. number of new shares: @1:2, new shares will be 50,000 b. amount of new investment: 50,000@$10 = $500,000 c. total value of company after issue: $4,000,000+$500,000= $4,500,000 d. total number of shares after issue: 150,000 e. share price after the issue: $4,500,000/150,000= $30

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