ABC Ltd. is considering a right issue by issuing one equity share against two existing equity shares to raise funds for financing a new project requiring ₹ 10 crore. The floatation cost will be 15% of funds raised. The c

Fair Value of a right = (Market price - offer price) / (Original holding + Rights) = (₹ 250 - ₹ 100) / (2 + 1) = ₹ 150 / 3 = ₹ 50 per share Alternate answer: Value of Right = [Number of Rights Shares / Total shares (Old + New Holdings)] × [(Market Value - Right issue price)] = (1/3) × (₹ 250 - ₹ 100) = ₹ 50 per share Number of right shares to be issued: Equity capital of the company is ₹ 2 crore of ₹ 10 each fully paid (i.e. 20 lakh shares). Since the ratio of rights issue is given (1:2), it means the number of shares to be issued on rights issue is fixed. Also, the offer price is fixed at ₹ 100. Therefore, 10 lakh shares will be issued (of ₹ 10 each) at ₹ 100.