4 One director has proposed using a rights issue and has suggested a one-for-four offer.

(a) Briefly state the advantages to the company of making a rights issue.

(b) Assume, for this part of the case study only, that the current market price of an ordinary share is £3.10 and a discount of 20 per cent has been indicated. Calculate: (i) the number of shares which would need to be issued under this offer, (ii)

the amount of additional equity it would be expected to raise, and (iii) the theoretical ex-rights price (TERP).

Comment briefly on your findings, stating clearly whether you think this offer would be appropriate in the circumstances presented.