The following are the financial statements of Techman Ltd.

Income Statement for Last Year	$'000
Earnings before interest and tax	12,000
Interest expense	2,400
Earnings before tax	9,600
Tax	3,000
Earnings after tax	6,600

Balance sheet extract as at end of year	$'000
Ordinary shares (par value $0.50)	5,000
Retained earnings	15,000
Total shareholders' equity	20,000
8% bond	30,000
Total shareholders' equity and liabilities	50,000

The management of Techman Ltd is concerned about the financial leverage of the company and is considering whether it should do a rights issue to reduce the borrowings.

The idea contemplated is a 1-for-4 rights issue that is at a 20% discount to the current stock price of $2.30.

Required:

(a) Calculate the amount of money raised from this rights issue assuming full subscription.

(b) Calculate the theoretical ex-rights price

(c) Calculate the value of each right

(d) Calculate the change in net worth of a shareholder who owns 1,000 shares and subscribes to the rights issue

(e) Calculate the change in net worth of a shareholder who owns 1,000 shares and does nothing.

(f) Calculate the degree of financial leverage based on last year's financial statements. For every 10% change in EBIT, how much do we expect Earnings per Share to change?

(g) Assuming that there is no change in the EBIT next year, calculate the degree of financial leverage after the rights issue assuming full subscription and the proceeds are used to partially redeem the bonds.