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Answers

Example 3

A company, whose shares currently sell at $75 each, plans to make a rights
issue of one share at $60 for every four existing shares.

What is the theoretical ex-rights price of the shares after the issue?

A $75.00

B $72.00

C $67.50

D $63.00

Solution

The answer is (B).

[(4 × $75) + $60]/5 = $72

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