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CofTea Plc's last annual dividend was 20p and its current dividend yield is 4%. The board of directors is considering raising capital through a 1-for-4

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CofTea Plc's last annual dividend was 20p and its current dividend yield is 4%. The board of directors is considering raising capital through a 1-for-4 rights issue with an offer price set at a 15% discount to the current share price. Your friend Julia currently holds 700 shares and is concerned that her wealth will be impacted by the rights issue. a) Based on the existing proposal, by considering the change in her wealth if she was to i. fully accept the terms of the rights issue; or li. not take up any of the rights herself, but receive instead the proceeds from them being sold on her behalf demonstrate numerically why Julia should largely be indifferent to the rights issue. [NB You should ignore complications regarding the impact of market sentiment/issue costs on the share price.] [6 marks] The board of directors is contemplating whether or not to underwrite the rights issue. b) Discuss what would influence whether underwriting would accur or be desired. [6 marks] [Total: 12 marks] CofTea Plc's last annual dividend was 20p and its current dividend yield is 4%. The board of directors is considering raising capital through a 1-for-4 rights issue with an offer price set at a 15% discount to the current share price. Your friend Julia currently holds 700 shares and is concerned that her wealth will be impacted by the rights issue. a) Based on the existing proposal, by considering the change in her wealth if she was to i. fully accept the terms of the rights issue; or li. not take up any of the rights herself, but receive instead the proceeds from them being sold on her behalf demonstrate numerically why Julia should largely be indifferent to the rights issue. [NB You should ignore complications regarding the impact of market sentiment/issue costs on the share price.] [6 marks] The board of directors is contemplating whether or not to underwrite the rights issue. b) Discuss what would influence whether underwriting would accur or be desired. [6 marks] [Total: 12 marks]

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