ABC Company has the following equity at December 31,2013 [end of its fiscal year]

Ordinary shares 50 cents fully paidbr150m

Legal Reserve 22.5

Retained Earnings25.5

Total br198m

ABC Company has no long term loan. In theyear to 31, December2013, theoperatingprofit(netprofitbefore interestand tax) was br40m and itisexpected thatthiswillincreaseby 25% duringthe forthcomingyear. The business is listed on the 'Addis Stock Exchange' and the share price as at 31, December was br3.00.

Thebusinesswishesto raisebr150minorder to purchasea factoryand isconsideringtwopossible options. The first option is to make a 1-for-5 rights issue at a discount price of br2.50 per share. The second option is to process a long-term loan at an interest rate of 9% a year. If thefirstoptionistaken, itis expected thattheprice/earnings(P/E)ratio willremainthe same forthe forthcomingyear. On the other hand if the second option is opted for, it is estimated that the P/E ratio will fall by 10% by the end of the forthcoming year. Given also is tax rate of 20%.

Required:

a)Assuming a rights issue was made, calculate the following:

i)Ex-rights price of shares

ii)Value of the right of buying each share

b)Calculate the price of each share after one year, assuming that

i)Rights are issued

ii)The Company Opted for loan