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Sources of finance

Question 4

Value of a right

Jones Co, which has an issued share capital of 3 million shares each priced at
$6.70, makes a 2 for 3 rights issue at an issue price of $6.10. The TERP is
$6.46 per share.

Calculate the value of a right and the value of a right per existing share.

Value of a right = $6.46 – $6.10 = $0.36

Value of a right per existing share = $0.36/(3/2) = $0.24

Illustrations and further practice

Now try TYU questions 3 and 4 from Chapter 15

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