Question 3 (This question has three parts, (a), (b), and (c))

1. ABC Ltd announced a 1-for-6 rights issue to raise $10million equity capital. There are currently 60million shares outstanding and the cum-right share price is $2. An investor currently holds 120 ABC shares. Demonstrate with some simple examples how this investors wealth will be affect by the rights issue if the investor fully subscribes to the rights issue.
2. A company issuing converting preference shares (CPS) has specified that each CPS can be converted into a maximum of 50 ordinary shares. Whats the potential impact of this restriction on the wealth of CPS investors? Would this restriction make the CPS more attractive or less attractive to potential CPS investors?
3. Use your own words to describe under what circumstances a convertible note should be converted to ordinary equity.