Freeze plc is a service company that has been listed for six years. It has been advised that its proposed 1 for 4 rights issue should be at a 15 per cent discount to its current ordinary share price of £4.20. The proposed rights issue is for £3m to expand existing business activities.

(a) Mr Tundra is a small investor who owns 10 000 shares of Freeze plc. Using the information provided, discuss the effect of the proposed rights issue on the personal wealth of Mr Tundra.

(b) Critically discuss the factors to be considered by Freeze plc in using a rights issue as a way of raising new equity finance. Your answer should include a discussion of the following points:

(i) the difference between actual and theoretical ex-rights price;

(ii) other ways in which Freeze plc could raise the new equity finance.