Somnath Ltd. has a share capital of 50,000 equity shares of ₹100 each. Market value is ₹250 per share. The company decides to make a rights issue to the existing shareholders in proportion of one new rights share of ₹100
CS Executive · Capital Markets & Securities Laws · PYQS · December 2015
Somnath Ltd. has a share capital of 50,000 equity shares of ₹100 each. Market value is ₹250 per share. The company decides to make a rights issue to the existing shareholders in proportion of one new rights share of ₹100 at a premium of ₹30 per share for every 5 shares held. Calculate the value of rights.
Answer & Explanation:
Computation of value of Rights: Market value of 5 shares required to be held by shareholder (5 x ₹250) = ₹1,250 Add: Issue price of rights share (1 x ₹130) = ₹130 Total price of 6 shares = ₹1,380 Average price per share (1380/6) = ₹230 Value of Rights = Market value of the share - Average price of the share = ₹250 - ₹230 = ₹20
Topics: Capital Market Instruments
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