D plc is in the process of making a 1 for 4 rights issue . the right letters have just been sent to shareholders. The company currently has 20 million k1 shares in issue and the current price is k4.50 per share. The rights letter gives shareholders the right to buy their new shares for k3.50 each. D plc plans to use the cash raised to build a major extension to it's factory ,there by doubling production capacity. The finance director has received an angry letter from a shareholder . The shareholder complains that he cannot afford to invest in new shares .He contends that is likely to suffer a loss because of the fact that the market will be flooded with cheap shares as the issue will almost certainly decrease the value of his holding. I) calculate the value at which the share price is likely to settle after the right issue? ii) Explain whether the shareholder 's complaint is justified with particular reference to the difference between the rights price and the current market price?