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Right Offering Valuation and Analysis

This document discusses right offerings and how to calculate values related to rights issues. It includes examples of calculating the theoretical value of a right, ex-right price of shares, and number of rights required to purchase new shares. The key aspects covered are how to determine the value of rights based on market price and subscription price, and how the issuance of rights impacts share prices. Sample problems demonstrate calculating numbers of new shares issued, theoretical right values, and the new market value of companies undertaking rights issues.

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Ramji Bhandari
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71 views12 pages

Right Offering Valuation and Analysis

This document discusses right offerings and how to calculate values related to rights issues. It includes examples of calculating the theoretical value of a right, ex-right price of shares, and number of rights required to purchase new shares. The key aspects covered are how to determine the value of rights based on market price and subscription price, and how the issuance of rights impacts share prices. Sample problems demonstrate calculating numbers of new shares issued, theoretical right values, and the new market value of companies undertaking rights issues.

Uploaded by

Ramji Bhandari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Common stock and investment

banking process-II

Solution to numerical problem


Right offering
• 
No of right share to be issued(N) =

No of right required to purchase one new share( #)=

Value of each right()=

Ex right Price ()=Market Price()-Value of right()

Ex right Price ()=


Question No. 9

• 
• Given information,
Current selling price of jhapa electronic company(=Rs.180 per share
Subscription price per share (=Rs.140
No of right required to purchase one new share (#) =3
(a) Compute a theoretical value of of a right when the stock is selling
right on ((=?
Here,
Theoretical value of right (=== Rs.10
……..Question No. 9
•(b)  Value of one share when it goes to ex right price()=?
Here,
Ex right price of share()= Market price()-Value of right()
=Rs.180- Rs.10
=Rs 170
(c ) Ex right price()=Rs.172
Value of right () =?
Here, Theoretical value of right when stock goest to ex-right (=== Rs.10.67
Question no 10
•  Additional fund to be raised =Rs. 1,000,000
• Current market price of the stock ()=Rs. 150
• Subscription Price()=RS.100
• No of share outstanding (N) =40,000
(a) Number of new share to be issued under right offering =?
Here, No of new share =
=
=10000 shares
…….Question no 10

•(b)  No of right required to purchase one new share(#)=?


Here,
No of right required to purchase one new share(#)=
=
=4
Number of right to purchase one new share is 4. it indicates shareholders
should have 4 shares previously to purchase 1 new share.
(c ) Theoretical value of right (=== Rs.10
…….Question no 10
•(d)Theoretical
  value of share when stock goes ex-right()=?
Here,
Ex right Price ()=Market Price()-Value of right()
=Rs.150-Rs.10
=Rs140
(e) Ex right price ()=Rs.145,
Subscription price ()=Rs.100
Value of right()=?
Here,
Value of right ()====Rs.11.25
Question no.11

•   information,
Given
Current market price of the stock of Zenith company()=Rs. 130
Subscription price= ()=Rs.100
No of right required to purchase one new share(#)=2
(a) Value of each right (Vr)=?
Here,
Theoretical value of right (=== Rs.10
(b) What effect will the issuance of the right have on the original market price?
After the issuance o right share, original market price per share will decrease to extent of value
of right . In tthis problem also market price will decrease to Rs 120(Rs130-Rs10) after the
issuance of share.
Ex right Price ()=Market Price()-Value of right()=Rs130-Rs.10=Rs120
Question no 12
•   information,
Given
No of shares outstanding (N) =240,000 shares
Market Price per share(Po) =Rs.80
No. new shares to be issued=60,000 shares
Offered price/Subscription price(Ps)=Rs 60
(a) What is the new market value of the company?
Here,
Market value of the company = No of outstanding sharesmarket Price per share + No. new
shares to be issued Subscription price per share
= 240,000 shares Rs80 +60,000 Shares Rs.60
= Rs2,28,00,000.00
=
……Question no 12
•   How many right are associated with one new shares(#)=?
(b)
Here,
Number of right required to purchase a one new share =

=4 rights
(c ) What is the ex- right price?
Here, Ex right Price ()== =Rs76
……Question no 12
•   What is the value of right?
(d)
Here, Value of right(Vr)=== Rs4
(e)Reasons for right offering:
1.To increase capital
2. to maintain previous ownership proportion
3.To Protect in dilution of shareholders wealth
4. To reduce flotation cost
Thank You

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