Faff plc. has announced a rights issue to raise 50 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a non-refundable reviewing fee of 5,000 per page. The equity currently sells for 40 per share, and there are 5.2 million shares outstanding.

(a) What is the maximum possible subscription price? What is the minimum?

(b) If the subscription price is set at 35 per share, how many shares must be sold? How many rights will it take to buy one share?

(c) What is the ex-rights price? What is the value of a right?

(d) Show how a shareholder with 1,000 shares before the offering and no desire (or money) to buy additional shares is not harmed by the rights offer.