DEF Plc currently has 5,000,000 ordinary shares in issue and is making a rights issue to its shareholders of 2 new shares for every 5 currently held. The current market price of the shares is 400 pence and the rights issue price will be set at a 40% discount to the current market price. The par value of the shares is £1. How much cash will the rights issue raise?

Question

Quizplus · Accepted Answer

The rights issue offers 2 new shares for every 5 held, so 2,000,000 new shares will be issued (5,000,000 / 5 * 2). The issue price is 60% of 400 pence, which is 240 pence per share. Therefore, the cash raised is 2,000,000 shares * 240 pence = £4,800,000.

DEF Plc Currently Has 5,000,000 Ordinary Shares in Issue and Is