Chambers Industries has a market capitalisation of $800 million and 250 million shares outstanding. The management of this firm plans to raise further capital through a rights issue. Which of the following rights schemes will raise the most money, if all shareholders exercise their rights?

Question

Quizplus · Accepted Answer

To calculate the amount of money raised, we need to first calculate the total number of shares outstanding after the rights issue:

For option A: 250 million shares x 2 = 500 million shares
For option B: 250 million shares x 4 x 3/4 = 750 million shares
For option C: 250 million shares x 3 x 2/3 = 500 million shares
For option D: 250 million shares x 5 x 2/5 = 500 million shares

Next, we calculate the amount of money raised:

For option A: 500 million shares x $1.60 per share = $800 million
For option B: 750 million shares x $2.00 per share/3 shares = $500 million
For option C: 500 million shares x $1.80 per share/2 shares = $450 million
For option D: 500 million shares x $1.50 per share/2 shares = $375 million

Therefore, option B will raise the most money, at $500 million.

Chambers Industries Has a Market Capitalisation of $800 Million and 250