QUESTION 5

b) Richy Ltd. intends to raise $50 million to finance a new project through a rights issue. The project has a 10-year economic life with zero scrap value. The project is expected to generate annual cash inflows of $l4 million. The company has 10 million issued and fully paid up ordinary shares. The market price of the company's ordinary shares before the announcement of the rights issue was $35 per share. The company's cost of capital is 14%.

Required:

The cum-rights price of the shares.