On 15 May 2012 shareholders in SCT PLC received provisional allotment letters detailing the terms of a rights issue. SCT planned to sell a total of 6,123,010,462 new ordinary shares based on 11 new shares for every existing 18 shares. The subscription price for the new shares was 2.00. Required

A. SCT aimed to raise 12,000,000,000 net. Calculate the total issue costs as a percentage of the gross sum raised.

B. The rights issue was announced on 21 April 2012. At the time SCTs share price was 3.725. By 14 May (immediately prior to the ex-rights date) the share price had fallen to 3.1925. Calculate the theoretical ex-rights prices (TERP) for both 21 April and 14 May.

C. Calculate and comment on the scale of the discount represented by the rights subscription price compared to the TERPs on 21 April and 14 May.

D. When SCT shares became ex-rights on 15 May the price fell to 276 pence, from 3.1925 the previous day. Comment on the extent to which the fall in SCTs share price was consistent with the shares becoming ex-rights.

E. Assume that a shareholder with 18,000 SCT shares chooses not to subscribe to the rights offer. Illustrate the scale of ownership dilution that the shareholder would experience and briefly discuss whether ownership dilution necessarily has an adverse effect on the interests of existing shareholders?