Mahmood al-Fahdui Importers Limited (MFIL) of Vancouver has 30 million common shares outstanding at a market value of $7.80 per share on March 31, 2010. On April 1, 2010, MFIL issued one right for each outstanding share. To acquire a new share at $6.00 will require three rights. Your father currently owns 600 shares in MFIL.
Required:
(a) Calculate the market capitalization of MFIL on March 31, 2010, before the rights issue.
(b) Calculate the value of one right.
(c) Calculate the value of your father's holdings in MFIL on:
(i) March 31, 2010.
(ii) April 1, 2010, assuming he uses the rights to buy new shares.
(iii) April 1, 2010, assuming he sells his rights.
(d) Based on your results in part (c), what is your conclusion about the value of your father's holdings in MFIL?