A firm's current share price is £4. It has 50m shares in issue and plans to sell a further 10m shares in a 1 for 5 rights issue at a price of £3 per share. What is the ex- rights price?

Question

Quizplus · Accepted Answer

The ex-rights price can be calculated using the formula: [(Old shares x Old price) + (New shares x Issue price)] / (Old shares + New shares). Plugging in the numbers: [(50m x £4) + (10m x £3)] / (50m + 10m) = (£200m + £30m) / 60m = £230m / 60m = £3.83.

A Firm's Current Share Price Is £4