A company has 6 million shares in issue.

CIMA F3 Question Answer

A company has 6 million shares in issue. Each share has a market value of $4.00.

$9 million is to be raised using a rights issue.

Two directors disagree on the discount to be offered when the new shares are issued.

• Director A proposes a discount of 25%

• Director B proposes a discount of 30%

Which THREE of the following statements are most likely to be correct?

The theoretical ex-rights price will be higher under Director B's proposal than under Director A's proposal.

More shares will be issued under Director B's proposal than under Director A's proposal.

The rights issue price will be $3.00 under Director A's proposal.

The terms of the rights issue will be one new share for every two existing shares under Director A's proposal.

Shareholder wealth will be higher under Director A's proposal than under Director B's proposal.

CIMA F3 Summary

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