Johnson Holdings Plc has 20 million ordinary shares of 0.50 in issue. These shares are currently valued on the stock exchange at 1.60 per share. The directors have decided to make a one-for-four issue( that is, one new share for every four shares held) at 1.30 er share.

Required: Calculate the theoretical ex-rights price.

and

An investor with 2,000 shares in Johnsen Holdings plc has contacted you for investment advice. She is undecided whether to take up the rights issue, sell the rights or allow the rights offer to lapse.

Required: Calculate the effect on the net wealth of the investor for each of the options being considered.