Assuming all shareholders take up their rights, how much new finance will be raised ?

CORRECT TEXT

A company wishes to raise new finance using a rights issue. The following data applies:

• There are 10 million shares in issue with a market value of $4 each

• The terms of the rights will be 1 new share for 4 existing shares held

• After the rights issue, the theoretical ex-rights price (TERP) will be $3.80

Assuming all shareholders take up their rights, how much new finance will be raised ?

Give your answer to one decimal place.

$ ? million

Answer: 7.5, 7.50