FINANCIAL MANAGEMENT

Assignment 2

Name: Giovanna Stefanía Reyes Lescano

NIUB: 20744146

You own 1.000 shares of ABC Enterprises, with a nominal value of 1 € each. The company
announces a capital increase of 1 new share for 4 old shares at a subscription price of 28 €. The
subscription period will end on September 30th. ABC has 1.200.000 shares outstanding, and the
closing price of the stock the day before the starting of the subscription period is 30 €. The
newly issued shares will grant equal economic rights to shareholders.

1) What is the total amount of funds that ABC wants to raise by issuing the new shares,
and what is its breakdown between capital and reserves?

Funds Raised = New Shares * Subscription Price

➔ New Shares Issued = Existing Shares / Ratio
➔ NSI = 1,200,000 shares / 4 = 300,000 shares
Stockholder’s new equity = 300,000 shares * €28/share = €8.400.000
Breakdown:
➔ Capital Increase = New Shares * Nominal Value
300,000 shares * €1/share = €300,000
➔ Reserves: €8,400,000 - €300,000 = €8,100,000

2) How many preemptive rights are required to subscribe 1 new share?

NR = No/Nn = 4/1 = 4

3) What is the theoretical price of a preemptive right?

PR= (Po-Pi)/(Nr+1)
PR = 30-28 / 4+1
PR= 0,4€

4) What is the prospective stock price once the subscription period expires?
PA= (No*Po+Nn*Pi)/(No+Nn)
PA= (1200000*30 + 300000*28) / (1200000+300000)
PA= 29,6€
5) How many new shares can you subscribe, and what would be the funds required to do
so?
➔ Ownership of 1,000 shares = 1,000 preemptive rights.
➔ You can subscribe to 1,000 rights / 4 rights/new share = 250 new shares.
 Funds required: 250 new shares * €28/share = €7,000

6) In case you decide not to subscribe new shares, what would be the theoretical amount
you will get by selling your rights in the secondary market?

Theoretical preemptive right price = 2€

➔ Selling 1,000 rights at 0,4€/right would yield 400€

7) How many rights do you have to sell to subscribe new shares in a cash neutral basis?
➔ Pi/(Nr*Pr+Pi)*100
➔ 28/(4*0,4+28)*100
➔ = 94,6% (946 old shares)

8) What will be the theoretical amount a new shareholder will need to invest to subscribe
1.000 new shares?
1000new shares*4000 preemptive rights*Subscription Price(28)
→ 1000*4(28) = 29600€

In case that the aforementioned capital increase had entailed different economic rights for
the newly issued shares, so new shares can enjoy present year dividend from September
30th on…

1) What would be the preemptive right theoretical price if the dividend is 1 € per share?
PR= ((Po-Pi) - (D*t / 365)) / (Nr+1)
PR= ((30-28) - (1*273/365)) / 4+1
PR= (2- 0,748) / 5
PR= 0,25€

2) When the new shares and the old ones will quote at the same price?
Never, because their value is different, 1 share of the new ones values 4 times more
than one of the old ones