Question 1 Shareholders in Wetherfield Furniture Plc have just received provisional allotment letters detailing the terms of a rights issue intended to raise capital to help finance an expansion in the number of Wetherfields retail outlets. The company intends to raise a total of 58.5 million - 15 million by means of a placing, and the rest through the rights issue. Shareholders are entitled to one new share for every four existing shares held. The issue price for the new shares is 42 pence, and the market price of Wetherfields shares on receipt of the allotment letters was 64 pence.

Required 1. Calculate the theoretical ex-rights price of Wetherfield shares and briefly comment on whether we should expect the actual ex-rights price to equal the theoretical ex-rights price

. 2. Assume that the actual ex-rights price is equal to the theoretical ex-rights price. Show how an investor with 100,000 shares in Wetherfield might trade the rights with the aim of holding the value of the equity investment in Wetherfield constant.