(a) Lexbel plc generates earnings after tax (PAT) of 20 per cent on shareholders funds.

Its current capital structure is as follows: Ordinary shares of 50p each 300,000 Reserves 400,000 Total: 700,000

The board of Lexbel plc wishes to raise 180,000 from a right issue in order to expand existing operations. Its return on shareholders funds will be unchanged. The current ex- dividend market price of Lexbel plc is 1.90. Three different rights issue prices have been suggested by the finance director: 1.80, 1.60 and1.40.

Determine: iv. form of the issue for each rights issue price