As the financial manager of Brodys Dog Food Plc, a UK company quoted on the London Stock Exchange (LSE), you have been asked to evaluate the companys options with regards to a new equity offering. Brodys Dog Food Plc currently has 50million shares in issue at a current market price of 250p per share. The company plans to raise 25million of new equity. The companys merchant bank has put forward the following proposals to the board:

1. A rights offering at a 20% discount to the current market price.
2. A deep-discounted rights offering at a 50% to the current market price.
3. A share placing at a 5% discount to the current market price.

1. Set out the terms of the rights offering for i, and ii, and the share placing in iii.

2. For options i and iii above show how the wealth of an investor with 1,000 shares in the company will be affected by the offer characteristics. Explain the difference in your answers to the two scenarios.