Associated Breweries is planning to market unleaded beer. To finance the venture
ID: 2771450 • Letter: A
Question
Associated Breweries is planning to market unleaded beer. To finance the venture, it proposes to make a rights issue with a subscription price of $10. One new share can be purchased for every two shares held. The company currently has outstanding 140,000 shares priced at $40 a share. Assuming that the new money is invested to earn a fair return, give values for the following:
number of new shares
amount of new investment
total value of co after issue
total number of shares after issue
share price after issue
Explanation / Answer
Number of new shares:
= 140,000×(1÷2)
= 70,000
Amount of new investment:
= 70,000×$10
= $700,000
Total value of company after issue:
= $700,000+140,000×$40
= $6,300,000
Total number of shares after issue:
= 140,000+70,000
= 210,000
Share price after issue:
= $6,300,000÷210,000
= $30
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