ABC Ltd., needs to raise $10 million more capital for an investment project and has decided to do so via a renounceable rights issue. BBB Ltd., has 10 million shares outstanding and the current market price of shares is $5.00. BBB Ltd.s advisers have suggested new shares should be issued at a discounted price of $4.00 per share.

a. How many new shares will be required?

b. How many exiting shares would be required to obtain one right. c. How much would one right be worth?

d. What is the theoretical ex-rights price of a BBB Ltd., share?

e. What is the new share discount to the theoretical ex-rights price?