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# Rights issue: subscription price

If a company is considering structuring the rights issue to allow for an additional share to be purchased for 10 rights at a subscription price of \$3, would a shareholder with 100 shares be indifferent between purchasing a new share for 10 rights at \$3 or purchasing a new share for 20 rights at \$6. Please prove your analyze with a given formula and the figures shown.

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If a  company is considering structuring the rights issue to allow for an additional share to be purchased for 10 rights at a subscription price of \$3, would a shareholder with 100 shares be indifferent between purchasing a new share for 10 rights at \$3 or purchasing a new share for 20 rights at \$6. Please prove your analyze with a given formula and the figures shown.

Let the sahre price before the issue of rights issue be \$10.00

Case 1
purchasing a new share for 10 rights at \$3.00
No of shares held= 100
Mkt value of these shares= \$1,000 =100*\$10.
No of rights required ...

#### Solution Summary

The solution calculates the point of indifference between purchasing a new share for 10 rights at \$3 or purchasing a new share for 20 rights at \$6.

\$2.19