Hanging Valley plc has issued share capital of 2m ordinary shares, nominal value 1.00. The board of the company has decided it needs to raise 1m, net of issue costs, to finance a new product.

It has been suggested that the additional finance be raised by means of a 1 for 4 rights issue. The issue price will be at q 20 percent discount to the current market price of 2.75 and issue costs are expected to be 50,000. Calculate and explain the following.

1) Theoretical ex-rights price per share

2) net cash raised;

3) The value of the rights.