a$.$ What is a rights issue and of what benefit is it to a company and the shareholders. Give examples

and cite your work $($ in$-$text and references$)(2$ Marks$)$

b$.$ Rotse PLC can achieve a profit after tax of $20\%$ on the capital employed. At present its capital

structure is as follows.

$20,000$ Ordinary Shares of K$100$ each

$200,000$

Retained Earnings

$100,000$

$300,000$

The directors propose to raise an additional K$126,000$ from a rights issue. The current market

price is K$180$

Required:

i$.$

Calculate the number of shares that must be issued if the rights price is: K$160,$ k$150,$ K$140$

or K$120(6$ Marks$)$

ii$.$

Calculate the dilution in Earnings per share in each case. $(4$ Marks$)$