Question

(a) Mega Plus Bhd wants to raise RM15 million in new equity through rights offering. Currently its share price is RM30 per share and the corporation has 3 million share outstanding. The subscription price is half the current share price.
(i) Calculate how many new shares Mega Plus Bhd must issue? (3 marks)
(ii) Assuming you own 30,000 ordinary shares in Mega Plus Bhd. If you receive the rights offering, calculate how many of the new shares can you purchase? (3 marks)
(iii) Calculate the share price after the rights offering. (4 marks)
(iv) Calculate the value of one right. (3 marks)
(v) Calculate your total investment in Mega Plus Bhd after the rights offering. Demonstrate the effect on the economic wellbeing of your investment before and after the rights offering. (6 marks)
(b) Do you prefer to be a stockholder or a bondholder of a corporation? Explain THREE (3) contrasting features.

Answer 1

As per the Chegg Guidelines, in case of multiple sub questions, first four sub questions need be answered unless any specific sub question is specified. Accordingly, answer to first four sub- questions is as given below:

(i)	No. of new shares that must be issued
	`	RM
	Amount to be raised through rights offering	15,000,000
	Subscription price per share	15	(Half of current share price of RM 30)
	No. of new shares that must be issued	1,000,000	(15,000,000 / 15)

(ii)	Number of new shares that can be purchased when we currently hold 30000 shares
	Total number of outstanding shares of Mega Plus Bhd before rights issue	3,000,000
	Number of new shares to be issued through rights offering	1,000,000
	Ratio of rights shares to be issued	1 right share per 3 existing share	(1000000/3000000)
	Number of new shares that can be purchased when we currently hold 30000 shares	10,000	(30000 existing shares/3 existing shares*1 right share)

(iii)	Share price after the rights offering
	30000 existing shares at RM 30 per share	900000
	10000 new shares at RM 15 per share	150000
	Value of 40000 shares	1050000
	Share price after rights offering	26.25	(1050000/40000)

(iv)	Value of one right
	= Share price after rights offering - Rights issue share price
	= 26.25 -15
	= 11.25