The balance sheet of Eaton PLC is as follows:

The market price of the ordinary shares is £1.50, and the company proposes to make a rights issue of 1 for 2 at a price of £1.30 per share:

(a) What is the likely market price of the ordinary shares after the rights issue?

(b) Show why an ordinary shareholder is indifferent between taking up the rights offer and selling his rights.

(c) Prepare the ledger accounts to give effect to the rights issue.

(d) Draw up the balance sheet after the issue has been made .

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20,000 1 ordinary shares 20,000 Sundry assets 35,000 Share premium Undistributed profit Current liabilities 2,000 Bank 14,000 4,000 40,000 5,000 40,000