Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Nixon Corporation has planned right issue of 50,000,000 Ordinary shares which has par value of PKR 10/- each. The stock of Nixon Corporation is illiquid

Nixon Corporation has planned right issue of 50,000,000 Ordinary shares which has par value of PKR 10/- each. The stock of Nixon Corporation is illiquid in nature so therefore, the right issue price will be 60% discount to the current market price which is PKR 80/- per share. The proceeds from this right issue will be utilized for Balancing, Modernization and Replacement (BMR) of existing unit. A local brokerage house has been appointed as underwriter by the Company for the subject right issue. The brokerage house has approached other financial institutions for underwriting commitment in the subject right issue. Underwriting Commission will be 0.80% and Take up Commission will be 1.20%. East West Bank has given underwriting commitment of PKR 800Mn for the aforementioned right issue.


Required:

(a) What will be the underwriting and take up commission amount for East West Bank if right issue is 70% subscribed?

(b)After 6 months of this right issue, current market price of the stock is PKR 72/share and the Portfolio Manager of East West Bank wants to sell 40% shares which were taken up by the Bank as part of underwriting commitment in the right issue. Which type of strategy the Portfolio Manager should opt to execute the sell transaction in next 2 days:

i) At price level of PKR 70/share?

ii) At current market price level?

iii) What will be the capital gain / (loss) in both types of execution strategy?

Step by Step Solution

3.41 Rating (157 Votes )

There are 3 Steps involved in it

Step: 1

Answer Ans A Right issue of shares in numbers 50000000 Marke... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Federal Taxation 2016 Comprehensive

Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson

29th Edition

134104374, 978-0134104379

More Books

Students also viewed these Accounting questions

Question

Q3: Prove: For any sets A and B, Ax B = B A ?

Answered: 1 week ago