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A company needs to raise $20 million to finance a project.
It has decided on a rights issue at a discount of 20% to its current market share price.
There are currently 20 million shares in issuewith a nominal value of $1 and a marketprice of $5per share.
Calculate the terms of the rights issue.
Suggested Answer: A
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Calc_Set2
33 comments · newest first
DE
Derick
10 months ago
Wait, how does a 20% discount affect the share ratio?
QU
Queenie
10 months ago
I think it's 1 new share for every 5 existing shares.
FI
Fidelia
11 months ago
1 for 25? That sounds too low for such a big raise!
SO
Solange
11 months ago
Definitely not B, that seems way off.
CH
Chanel
11 months ago
The company needs to raise $20 million with a 20% discount.
RU
Ruby
11 months ago
I feel like the answer should be around 1 new share for every 5 existing shares, but I’m not completely confident in my calculations.
JE
Jettie
12 months ago
I think I practiced a question like this where we had to find the ratio for rights issues. I just can't recall the exact formula we used.
KA
Karl
12 months ago
If the market price is $5 and they want to issue at a 20% discount, that makes it $4 per share, right? I think that affects how many shares they need to issue.
BI
Billy
12 months ago
I remember we calculated the number of new shares needed in a similar question, but I'm not sure how to apply the discount here.
MI
Mitsue
1 year ago
Ah, this is a tricky one. I'll need to review the formulas and make sure I'm applying them correctly.
EM
Emelda
1 year ago
Okay, let me break this down step-by-step. I think I can figure this out.
MA
Marya
1 year ago
Hmm, I'm a bit unsure about how to approach this. I'll need to think it through carefully.
GR
Gregg
1 year ago
This looks like a straightforward calculation, I should be able to work this out.
LO
Louvenia
1 year ago
Oof, this is a tough one. I'm leaning towards option C, but I'm also a little worried that I might be overthinking it. At the end of the day, it's all about the numbers, right? *scratches head*
NA
Nadine
1 year ago
I'm going to go with option C as well. Let's see if we're all on the same page with this one.
BE
Beth
1 year ago
Yeah, I agree. Option C seems like the most logical choice based on the information given.
FR
Freida
1 year ago
I think you're on the right track with option C. It's all about the numbers, just trust your gut.
CE
Cecil
1 year ago
Alright, let's do this! I'm going with option A. One new share for every four existing shares sounds about right. Plus, it's the first option, so it must be the easiest one, right? *laughs*
GL
Glenn
1 year ago
Yeah, option A makes the most sense. It's a fair distribution of new shares based on the current number of existing shares.
MA
Margot
1 year ago
User3: Yeah, option A makes the most sense. Let's go with that.
RO
Ronny
1 year ago
I think option A is the correct one too. It's straightforward and makes sense given the information provided.
MA
Marvel
1 year ago
I agree with you, option A seems like the most logical choice. It's a simple ratio to follow.
DA
Dalene
1 year ago
User2: Agreed, that seems like the most logical choice.
MI
Mi
1 year ago
User1: I think option A is the way to go. One new share for every four existing shares.
MA
Mabel
2 years ago
I'm not sure about the calculation, but I think the terms of the rights issue should be A) 1 new share for every 4 existing shares.
MI
Mignon
2 years ago
Hmm, I'm not too sure about this one. Maybe option D? Doesn't seem like a lot of shares need to be issued for $20 million. I wonder if the person who wrote this question has ever tried to raise capital before.
BR
Brande
1 year ago
Let's calculate it together to be sure.
ZI
Zita
1 year ago
I see where you're coming from, but I still think it's option A.
CA
Catarina
1 year ago
Really? I was leaning towards option C, 1 new share for every 5 existing shares.
AS
Ashleigh
1 year ago
I think it's actually option A, 1 new share for every 4 existing shares.
ME
Mendy
2 years ago
I agree with Tommy. The discount of 20% means the new share price will be $4, which is 20% less than the current market price of $5.
LA
Lashandra
2 years ago
I think option C is the correct answer. The company needs to raise $20 million, and with a 20% discount, the new share price would be $4. With 20 million shares currently in issue, the company would need to issue 5 million new shares to raise the required $20 million.
TO
Tommy
2 years ago
I think the answer is A) 1 new share for every 4 existing shares.