Adam plc (public limited company) has in issue 2,000,000 equity shares. The shares have a current market value of 4 per share. The company now plans to issue rights to purchase one new share, at a price of 2.50 per share, for every five shares held.

a) Calculate the theoretical ex rights price. (2 marks)

b) Calculate the theoretical value of a right. (1 marks)

c) A shareholder owns 50,000 shares in Adam plc. Show the effect of the rights issue upon the shareholders wealth assuming that the shareholder:

i) Sells all the rights ii) Takes up all the rights

iii) Does nothing at all (8 marks)

d) Define and explain what is meant by a deeply discounted rights issue. (2 marks)

e) Discuss and evaluate the different methods of floating a company on the new issue market of the London Stock exchange main market. (7 marks)