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1) A company has 5 mil shares outstanding at a price of 8 GBP. It decides to make a rights issue of one new share

1) A company has 5 mil shares outstanding at a price of 8 GBP. It decides to make a rights issue of one new share for every 7 old shares. The price of the new share is 3 GBP.

(i) Is there an increase in portfolio value for the current shareholders? Also, what price change are they willing to accept before they become indifferent to having a right?

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