Question 4 Hoddle plc. has 15 million shares in issue which are currently trading at 7.50 and it has identified several new projects which it expects will increase shareholder wealth. The directors are considering funding them by raising additional equity capital via a 1 for 4 nights issue at 6.20 per share or by cutting the final dividend payable to shareholders. Required: (a) Calculate the theoretical ex-rights price of the company's shares if the rights issue was announced to the equity market. (2 marks) (b) Calculate the change in wealth and level of control of a shareholder who owns 300,000 shares in the company and who sells their nil-paid rights after the share price has fallen to the theoretical ex-rights price. Recalculate the change in wealth and level of control if the shareholder was to take up their rights and the share price remained unchanged at 7.50 (8 marks) (c) With reference to dividend theories, critically appraise the dividend cutting option as an alternative to the rights issue as a method to raise the required funding. (10 marks) (Total 20 marks) 2381 words E Focus