$.$ Case $(9\mathrm{.}2)$ Devon Ltd

Required:

a$)$ Assuming a rights issue of shares is made, calculate:

I. The theoretical ex$$rights price of a common share in Devon Ltd$.($ii$)$ The value of the rights

for each original common share.

b$)$ Calculate the price of a common share in Devon Ltd$.$ in one year$$s time assuming:

I. A rights issue is made

II$.$ A loan is obtained. Comment on your findings.

c$)$ Explain why rights issues are usually made at a discount.

d$)$ From the business$$s viewpoint, how critical is the pricing of a rights issue likely to be$?$