A limited company currently has $12$ million R$1$ shares in issue with a market price of R$5$ per

share. The directors will attempt to raise an additional R$20$ million by means of a rights issue

which will be done later today. The price offered to existing shareholders will be R$4$ per

share. The directors plan to invest the cash raised from this right issue into a project with an

estimated net present value of R$2$ million. The directors estimated that the costs associated

with this issue will be R$1$ million.

a$)$ Calculate the expected share price after this rights issue. $[6]$

b$)$ Calculate the percentage change in the companies$$Other Reserves$$ in the financial

statements assuming this section only consists of the Share Premium Account. $[4]$

Total for Question $2$: $10$