Question

To be submitted on or before 12.04.21, 12 midnight
Globe Inc has issued share capital of 5,00,000, $1 ordinary shares, and the current
share price is $3.8, in a market in which there is currently a general upward movement
in share prices. Globe Inc EPS have been increasing at a relatively stable rate and
were reported at $0.5 in the most recent annual report and accounts. Globe Inc is
planning to redeem $400,000, 5% redeemable bonds by making a one for four rights
issue of ordinary shares. However, the company does not want to dilute its EPS by
more than 12%. The company also wants the rights issue shares to be priced around
10% below the current share price. The company’s rate of corporate tax is 35%.
Required:
i. How many shares would be required and what is the lowest market price at
which the company would consider making the issue?​

Answer 1

Answer:

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