Unit- 1 Problem Sheet- 1(Valuation of Right) Q-1 The Info tech Ltd has 9, 00,000 shares outstanding at current

market price of Rs. 130 per share. The company needs rs.22.50million (Rs.2.25 crore) to finance its proposed modernization cum expansion project. The board of the company has decided to issue rights for raising the required money. The subscription price (Rs.) has been fixed at Rs.75 per share. The Subscription price has been set below the market price to ensure that the rights issue is fully subscribed. Calculate 1. How many new shares companies should issue to raise the required fund. 2. How many rights required purchasing a new share? 3. What is the value of a right? 4. Find out ex-right price. 5. Analyze the right issue from Shareholders point of view.

Q-2 The Sai Industries Ltd has 12, 00,000 shares outstanding at current market price of Rs. 120 per share. The company needs Rs. 3 crore to finance its proposed modernization cum expansion project. The board of the company has decided to issue rights for raising the required money. The subscription price (Rs.) has been fixed at Rs.100 per share. Find out1. What is the value of a right? 2. Comment on the wealth maximization of shareholders.

Q-3 The ohm Ltd has 8, 00,000 shares outstanding at current market price of Rs. 100 per share. The company needs Rs. 2 crore to finance its proposed modernization cum expansion project. The board of the company has decided to issue rights for raising the required money. The subscription price (Rs.) has been fixed at Rs.80 per share. The Subscription price has been set below the market price to ensure that the rights issue is fully subscribed. Calculate

1. Price of the Share after right issue. 2. Is the right issue is beneficial for the company and shareholders. Comment

Q-4 A firm is thinking for the three potential projects. The proposed capital expenditure of the company for these projects are respectively 4 crore, 2 crore, 2 crore. The Company has plan to invest 3 crore from the reserves and surplus and remaining form the rights issue. It has a 5 lakh share outstanding and the current market price of the share is Rs.170.The subscription price on the new share will be Rs. 125 per share. 1. How many new shares companies should issue to raise the required fund. 2. How many rights required purchasing a new share? 3. What is the value of a right? 4. Price after Right issue

Q-5 A company need fund of 10 crore for expansion and diversification activities. Company is planning to raise 2 crore from the preference shares and 3.5 crore by issue of convertible debenture and remaining by rights offerings. The floatation cost of right issue will be 10 per cent of funds raised. The Company currently has 20 lakh shares outstanding and the current market price of its share is rs.100.The subscription price has been fixed at Rs. 50 per share. 1. How many rights required purchasing a new share? 2. What is the value of a right?

Show the impact on Share holders wealth who holds required rights to buy one new share if (a) Exercises rights or (b) sell his rights or (c) does not exercise rights.

Q-6 A company need fund of 6 crore for expansion activities. Company is planning to raise 2 crore from the debt sources and remaining by rights offerings. The

Company currently has 10 lakh shares outstanding and the current market price of its share is rs.90.The subscription price has been fixed at Rs. 60 per share. 1. How many new shares companies should issue to raise the required fund. 2. How many rights required purchasing a new share? 3. What is the value of a right?