Agoro Limited has issued 75,000 equity shares of GH¢0.10 each. The current market price per share is GH¢24. The Company has decided to make a right issue of one (1) new equity share at a price of GH¢16 for every four (4) share held.
Required:
i) Calculate the theoretical ex-right price per share. (2 marks)
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ii) Calculate the theoretical value of the right. (1 mark)
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Ex-right Price – Right issue Price
¢22.40 – ¢16 = ¢6.40
iii) Mr. Crentsil currently holds 1,000 shares in Agoro Limited, show the effect of the rights issue on his wealth assuming he sells the entire right. (2 marks)
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iv) Calculate the effect if Mr. Crentsil does not take any action and ignores the right issue. (1 mark)
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This is a clear indication that a shareholder should exercise his/her right or sell the shares when right issues are made. Taking no action will lead to loss of value of wealth.