The Doom Company Ltd. has issued 10,000,000, K10 par equity shares which are at present selling for K30 per share. The company has plans to issue rights to purchase one new equity share at a price of K20 per share for every four shares held. Required: (a) (i) Calculate the theoretical ex-rights price of Doom Company Ltd.'s equity shares. (5 mark) (ii) The theoretical value of a right of the Doom Company Ltd. before the shares sell ex-rights. (3 marks) (b) The chairman of the company receives a phone call from an angry shareholder who owns 100,000 shares. The shareholder argues that he will suffer a loss in his personal wealth due to this rights issue, because the new shares are being offered at a price lower than the current market value. The chairman assures him that his wealth will not be reduced because of the rights issue, as long as the shareholder takes appropriate action. Required: Explain whether the chairman is correct by producing a statement showing the effects of the rights issue on this particular shareholder's wealth, assuming: - He sells all the rights. - He exercises one half of the rights and sells the other half. - He does nothing at all. (12 marks)