Nov 2018 Q2 b.

The Board of Directors of Continental Bank Ghana Ltd (CBGL) decided through a Board resolution to raise additional capital through rights issue to meet the new capital requirement by Bank of Ghana. CBGL plans to issue 1 new share for every 3 shares held by existing shareholders at 10% discount to its existing market price. CBGL currently has 6 million shares in issue at a book value of 2 cedis per share. CBGL maintains a dividend payout ratio of 50% and earnings per share currently is 1.6 cedis. Dividend growth is 5% per annum and this is expected into the foreseeable future. CBGL’s cost of equity is 15%. The issue cost is 600,000 cedis.
Required:
Calculate:
i) The market price per share                                                                                                         (2 marks)

ii) The capitalization of CBGL.                                                                                                     (2 marks)

iii) The rights issue price                                                                                                                (2 marks)

iv) The theoretical ex-right price                                                                                                    (2 marks)

v) The market capitalization after the rights issue                                                                          (2 marks)