Brocmar plc has 10 million ordinary £0.50 shares in issue. The market price of the shares is £1.80. The board of directors of the business wishes to finance a major project at a cost of £2.88 million. Forecasts suggest that the implementation of the project will add £0.4 million to aftertax earnings available to ordinary shareholders in the coming year. After-tax earnings for the year just completed were £2 million, but this figure is expected to decline to £1.8 million in the coming year if the project proposed is not undertaken. A rights issue at a 20 per cent discount on the existing market price is proposed. Issue expenses can be ignored.

Required:

(a) To assist the board in coming to a final decision, you are required to present information in the following format:

● Project not undertaken

(1) earnings per share for the coming year.

● Project undertaken and financed by a rights issue

(2) rights issue price per share

(3) number of shares to be issued

(4) earnings per share for the coming year

(5) the theoretical ex-rights price per share.

All workings should be shown separately.

(b) What information, other than that provided in the question, is needed before the board can make the investment decision?