Topic 4 Capital Raising Debt and Equity Continued

(b) The shares in Sheepies Boot Company are currently trading for $8.75. Sheepies announces that it intends to undertake a 4 for 1 rights issue, with a strike price of $8.70. In doing so it will raise $22 million, which it will use, along with some debt to build a factory and distribution network in Shepparton, focusing in supplying the New Zealand sheep skin boot market On this announcement the price of shares in Company X increases to $9.78. Calculate the value of the right and the ex-rights price.