Byron Ltd. shares are trading at $12 each. Its directors have announced a 1-for-5 rights issue with a subscription price of $11.20 per share.

REQUIRED

1) Calculate the theoretical value of a right to one new share.

2) Calculate the ex-rights price and the amount of right per share.

3) In theory, what is the maximum possible subscription price?

4) In theory, what is the minimum possible subscription price?

5) From the companys perspective what are the advantages and disadvantages of a rights issue; and when, if ever, may it cause the value of the company to increase?