According to Modigliani & Miller Theory (M&M), WACC of the firm is not affected by the capital structure. Changes of capital structure weights is offset by the change in the cost of equity, given the following information,

Required return on assets = 16% Cost of debt = 10%

Percent of debt = 45%

ii) Cost  .

iii)The debt-to-equity ratio. Suppose the cost of equity is25%.

iii)Percent of equity in the firm.

b. ZEC Corporation currently has 4 million shares outstanding. The stock sells for RM35 per share. The company wants to raise RM20 million to finance a new project, the firm is considering a rights offering at RM25 per share.

Calculate the following:

i. Number of shares to issued

 

ii. Number of rights needed to purchase one share

 

iii. Value of the right

c. Discuss the advantages of rights offering.