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    16 views1 page

    TUT 05 - Rights Issue

    Uploaded by

    Shubham Nayak

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    Tut 05: Rights Issue

    1. Generally the cost of equity is higher to the Tut 05: Rights Issue
    company as compared to loan i.e. if the same 1. Generally the cost of equity is higher to the
    amount is raised through equity rather than company as compared to loan i.e. if the same
    loan it cost more to the company. Reasons amount is raised through equity rather than
    attributed to it are loan it cost more to the company. Reasons
    a. Shareholders expectations
    b. Underwriting commission attributed to it are
    c. Flotation cost a. Expectations of shareholders v/s
    d. Tax deductibility of interest and divided Bondholders
    b. Underwriting commission
    Discuss these 4 issues in the above specified c. Flotation cost
    context. d. Tax deductibility of interest and divided
    2. A firm is thinking of a rights issue to raise Rs Discuss these 4 issues in the above specified
    5 crore. It has a 5 lakh share outstanding and context.
    the current market price of the share is Rs 170. 2. A firm is thinking of a rights issue to raise Rs
    The subscription price on the new share will 5 crore. It has a 5 lakh share outstanding and
    be Rs 125 per share. the current market price of the share is Rs 170.
    (i) How many shares should be sold to
    The subscription price on the new share will
    raise the required funds?
    (ii) How many rights are needed to be Rs 125 per share.
    (i) How many shares should be sold to
    purchase one new share?
    (iii) What is the value of one right? raise the required funds?
    (ii) How many rights are needed to
    3. A company is considering rights offering to purchase one new share?
    raise funds to finance new projects, which (iii) What is the value of one right?
    require Rs 4.5 crore. The flotation cost will be 3. A company is considering rights offering to
    10% to funds raised. The company currently raise funds to finance new projects, which
    has 20 lakh shares outstanding and the current require Rs 4.5 crore. The flotation cost will be
    market price of its share is Rs 100. The 10% to funds raised. The company currently
    subscription price has been fixed at Rs 50 per has 20 lakh shares outstanding and the current
    share. market price of its share is Rs 100. The
    I. How many shares should be sold to raise
    subscription price has been fixed at Rs 50 per
    the funds required for financing the new
    share.
    projects? I. How many shares should be sold to raise
    II. How many rights required to buy one new
    the funds required for financing the new
    share?
    III. What is the value of one right? projects?
    IV. Show the impact on a shareholders wealth II. How many rights required to buy one new
    who holds required rights to buy one new share?
    III. What is the value of one right?
    share if IV. Show the impact on a shareholders wealth
    (a) Individual exercised his rights, or
    (b) Sells his rights, or who holds required rights to buy one new
    (c) Does not exercise rights. share if
    (a) Individual exercised his rights, or
    (b) Sells his rights, or
    (c) Does not exercise rights.

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