QUESTION 23

1. Brother Ltd is proposing a 1 for 5 pro-rata renounceable rights issue. Presently there are 250,000 shares outstanding at $45 each. In accordance with the rights issue there will be 50,000 new shares offered at $40 each.

   (a) How many shares must an existing shareholder own to obtain a right to a new share? (2 marks)

   (b) What is the theoretical ex-rights share price of Brother Ltd? (3 marks)

   (c) What is the value of a right in Brother Ltd? (3 marks)

   (d) If the shareholder does not want to take up the rights issue based on the type of rights issue what do you suggest the shareholder does? Justify your answer. (2 marks)