Question
As a result of a recession Dafen plc has recorded losses over the last three years and has been forced to increase its borrowing. The
As a result of a recession Dafen plc has recorded losses over the last three years and has been forced to increase its borrowing. The board of directors has decided that the company cannot increase its debt-equity ratio further and it has been decided to reduce its level of debt. On this basis it has decided to undertake a rights issue to raise 200 million. The companys shares are trading at 4.00 and it is proposed to make the rights issue at a discount of 20 per cent to this price. The company has 250 million shares outstanding. Assume that an investor holds 100 shares in the company and chooses to take up their rights. What is the value of their portfolio after the shares have gone ex-rights?
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