Question 1 Fratelli plc has 30 million ordinary shares of 50p each in issue. These shares are listed on the stock exchange at 180p. The directors of the company require additional long-term capital and have decided to make a one-for-three rights issue at 120p per share. An investor with 3,000 shares in Fratelli 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. She also informs you that she has savings of 10,000 in the bank. Required: a) Calculate the theoretical ex-rights price of an ordinary share. (4 marks) b) Calculate the value at which the rights are likely to be traded. (3 marks) c) Evaluate each of the options being considered by the investor. (9 marks) d) From the company's viewpoint, how critical is the pricing of a rights issue likely to be. (4 marks) (Total 20 marks)