Brand plc generates profit after tax of 15 per cent on shareholders’ funds. Its current capital structure is as follows:

The board of Brand plc plans to raise £160,000 from a rights issue to expand existing operations. Return on shareholders’ funds will be unchanged. The current ex dividend share price of Brand plc is £1.90. Three different rights issue prices have been suggested by the finance director: £1.80, £1.60 and £1.40.
Calculate the number of shares to be issued, the theoretical ex-rights price, the expected earnings per share and the form of the issue for each issue price. Comment on your results.

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E Ordinary shares of 50p each 200,000 Reserves 400,000 600,000