terms of the rights issue is 1 share for every 4, offered @ 20% discount to the current market price per share.issue costs will be 1 million and will be settled out of the cash raised. capital structure; Equity. $m ordinary shares ($0.50). 10 retained profit. 67 =. 77

non current liabilities 5%bond( redeemable). 40

cash raised by Rights issue will be used to redeem some of the Bond's.each bond has a nominal value $100.the bonds will allow the company to redeem the Bond's at $2 above market price at anytime prior to redemption date. Price/earnings ratio of the company is expected to be unaffected by the redemptions. other information;

current earnings per share. $0.20 current market price per share $2.75 current market price/$100 bond. $ 103 total earnings. $8m taxation rate @ 20% pa

1.calculate the theoretical ex- rights price of a share following the rights issue? 2. Assess the impact on the wealth of shareholders using the money raised by the rights issue to redeem some of the bonds ( show all workings)

.