QUESTION FOUR

The current price of Melon Corporations stock is RM22 per share, and the number of shares outstanding is 1.5 million. To finance its new project, the company plans to raise RM4 million through rights issue as follows: three shares of outstanding stock are entitled to purchase one additional share of the new issue.

a) Calculate the ex-rights price, the appropriate subscription price, and value of a right.

(4 marks)

b) How does the stockholders wealth change if rights issue change to four shares of outstanding stock are entitled to purchase one additional share of the new issue?

(2 marks)