Question 2

Do share splits help a firm to raise money? Why would a firm decide to do a share split?

Alumina Limited has a share price of $2.72. The company has made a renounceable rights issue offer and the offer is a 2-for-8 pro-rata issue of ordinary shares at $2.40 per share.

Calculate the price of a right.

Calculate the theoretical ex-rights share price.

Explain why an actual ex-rights share price may differ from the calculated theoretical price.

[3+(3+3+3)] = 12 marks