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Rights issues of Shares

  • 28-04-2013 05:06PM
    #1
    galwayjohn89
    Closed Accounts Posts: 1,930 ✭✭✭


    Have an accounting exam tomorrow and can't work this question out:

    The shares of a company with 12 million ordinary shares with a par value of €10 each are currently trading at €20 per share. The company is now organising a one-for-four rights issue at a price of €15 per share. The theoretical post-rights-issue value per share will be:

    (a) €10 (b) €15 (c) €20 (d) None of these.

    The way I do it (which is probably wrong) is:

    Current Shares Value: 12x €20 = €240 Million
    New Shares Value: 3x €15 = €45 Million
    Total Share Values: €285 Million
    Price per share is €285/15 €19 each.

    The answer is €20 apparently.


Comments

  • #2
    Infoanon
    Registered Users, Registered Users 2 Posts: 5,021 ✭✭✭Infoanon


    Vuzuggu wrote: »
    Have an accounting exam tomorrow and can't work this question out:

    The shares of a company with 12 million ordinary shares with a par value of €10 each are currently trading at €20 per share. The company is now organising a one-for-four rights issue at a price of €15 per share. The theoretical post-rights-issue value per share will be:

    (a) €10 (b) €15 (c) €20 (d) None of these.

    The answer is €20 apparently.

    If the shares are currently trading at EX-RIGHTS price of €20 then the answer is €20.

    Cum Rights the answer is €19


  • #3
    galwayjohn89
    Closed Accounts Posts: 1,930 ✭✭✭galwayjohn89


    Infoanon wrote: »
    If the shares are currently trading at EX-RIGHTS price of €20 then the answer is €20.

    Cum Rights the answer is €19

    How do you work out it's €20?


  • #4
    Infoanon
    Registered Users, Registered Users 2 Posts: 5,021 ✭✭✭Infoanon


    Vuzuggu wrote: »
    How do you work out it's €20?

    By definition - you are looking for the theoretical ex-rights price - if the € 20 is ex-rights then bobs your uncle.


  • #5
    masoodsarwar
    Registered Users, Registered Users 2 Posts: 152 ✭✭masoodsarwar


    Vuzuggu wrote: »
    Have an accounting exam tomorrow and can't work this question out:

    The shares of a company with 12 million ordinary shares with a par value of €10 each are currently trading at €20 per share. The company is now organising a one-for-four rights issue at a price of €15 per share. The theoretical post-rights-issue value per share will be:

    (a) €10 (b) €15 (c) €20 (d) None of these.

    The way I do it (which is probably wrong) is:

    Current Shares Value: 12x €20 = €240 Million
    New Shares Value: 3x €15 = €45 Million
    Total Share Values: €285 Million
    Price per share is €285/15 €19 each.

    The answer is €20 apparently.

    I think u r calculating it right. Its always the weighted average.

    if the are trading at 20 now (cum right price) , obviously after the right issue the price will go down as no of shares will increase.

    so the answer is "none of these"
    as 19 is not an option.


  • #6
    HobbyMan
    Banned (with Prison Access) Posts: 212 ✭✭HobbyMan


    masoodsarwar wrote: »
    I think u r calculating it right. Its always the weighted average.

    if the are trading at 20 now (cum right price) , obviously after the right issue the price will go down as no of shares will increase.

    so the answer is "none of these"
    as 19 is not an option.

    I agree. I calculated the answer the same way as the OP without looking at his answer (therefore he must be right :rolleyes: ).


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