2011 September no 2 2. Hold plc has 20 million shares outstanding priced at £5 a share. A rights issue will allow one share to be purchased for every five shares currently held by shareholders for £3 each. Which of the following is true? A The number of shares outstanding will fall to 16 million. B The firm will raise £32 million. C The stock price will fall to £4.67. D The company’s total value will decrease to £88 million. Why would the answer be C and how is it calculated ?
Hello It's calculated using the formula in Chapter 5 Section 2.2, ie a weighted average of the £5 share price before the rights issue and the £3 rights issue price.
