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Cabby plc has a paid-up ordinary share capital of K1,500,000 represented by 6 million shares of K0.25 each. It has no loan capital. Earnings after
Cabby plc has a paid-up ordinary share capital of K1,500,000 represented by 6 million shares of K0.25 each. It has no loan capital. Earnings after tax in the most recent year were K1,200,000. The P/E ratio of the company is 12. The company is planning to make a large new investment which will cost K5,040,000, and is considering raising the necessary finance through a rights issue at K1.92.
Required
- Explain what a rights issue means. (3 Marks)
- Calculate the current market price of Cabby plcs ordinary shares. (8 Marks)
- Calculate the theoretical ex rights price. (8 Marks)
- State any three (3) advantages and three (3) disadvantages of raising finance through a rights issue. (6 Marks)
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