New 55% Off on All Courses - Enroll Now! Click Here

    Question

    Avinash Ltd needs approves to raise capital through

    rights issue to its existing shareholders in the ratio of 1:2. If, the market value of the share is Rs. 220 and the company is offering one share of Rs. 160 each under rights issue, what is the value of the right offered by the company?
    A Rs.0 Correct Answer Incorrect Answer
    B Rs.20 Correct Answer Incorrect Answer
    C Rs.40 Correct Answer Incorrect Answer
    D Rs.60 Correct Answer Incorrect Answer
    E Rs.100 Correct Answer Incorrect Answer

    Solution

    Value of right = Market price – average value of each share including the rights share To calculate average value of share including rights Value of 2 existing shares = 2*220 = Rs.440 Value of each rights share = 1*160 = Rs.160 Value of 3 shares = 600 Average value of each share (including rights) = 600/3 = Rs.200 Thus, value of right = market value – average value = 220-200 = Rs.20

    Practice Next