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What is the maximum and minimum possible subscription price

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QUESTION 1 - Stanlib issued one for four rights shares on 31st March 2018 at an exercise price of R1. Market value of its shares immediately prior to the rights issue was R1.5 per share. If Stanlib had one million shares before the issuance of rights shares and all rights were exercised by shareholders on 31st March 2017, calculate the ex-rights price.

QUESTION 2 - Klutz Publishers Ltd has announced a rights offer to raise R80 million for a new journal, the Journal of Financial Excess. The shares currently sell for R40 per share, and there are 5.2 million shares in issue.

(a) What is the maximum and minimum possible subscription price?

(b) If the subscription price is set at R35 per share, how many shares must be sold? How many rights will it take to buy one new share?

(c) What is the ex-rights price? What is the value of a right?

(d) Show how a shareholder with 1000 shares before the offering and no desire to buy additional shares is not harmed by the rights offer.

(e) Why might a rights offering be preferable than a general cash offer?

Reference no: EM133053729

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