Dartig Co is a stock-market listed company that manufactures consumer products and it is planning to expand its existing business. The investment cost of $5 million will be met by a 1 for 4 rights issue. The current share price of Dartig Co is $2.50 per share and the rights issue price will be at a 20% discount to this. The finance director of Dartig Co expects that the expansion of existing business will allow the average growth rate of earnings per share over the last four years to be maintained into the foreseeable future.
Harpoon Co is planning to raise $14.4m through a rights issue. The chief financial officer of Harpoon has analyzed that it would take a 20% discount on the market price of share, which is currently $4.5, to make the new issue of shares fully subscribed. The rights issue will be on a 1 for 5 basis and issue costs of 2% on the cash raised will be paid out of the cash raised. The capital structure of Harpoon Co is as follows:
Omani Co is a stock exchange listed company that is concerned by its current level of debt finance. It plans to make a rights issue and to use the funds raised to pay off some of its debt. The rights issue will be at a 25% discount to its current ex-dividend share price of $8 per share and Omani Co plans to raise $300 million, all of the proceeds will be used to repay 9% bond to whatever extent possible. Omani Co believes that paying off some of its debt will not affect its price/earnings ratio, which is expected to remain constant.