Mahogany plc has an ordinary share price of £3 and is quoted on the Alternative Investment Market. It intends to raise £20m through a one-for-three rights issue priced at £2.

a What will the ex-rights price be?

b How many old ordinary shares were in circulation prior to the rights issue?

c Patrick owns 9,000 shares and is unable to find the cash necessary to buy the rights shares. Reassure Patrick that he will not lose value. How much might he receive from the company?

d What is the value of a right on one old share?

e What do the terms cum-rights and ex-rights mean?

f Advise Mahogany on the virtues of a deep-discounted rights issue.