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Tutorial 4 Questions

The document contains a series of seminar questions focusing on equity topics, including the fairness of share prices on the Alternative Investment Market, the pros and cons of issuing preference shares, and the concept of pre-emptive rights. It also discusses a specific case involving Jumpjet plc's rights issue and its potential impact on share price, as well as the advantages and disadvantages of obtaining a listing on the London Stock Exchange. Additionally, it includes calculations related to a rights issue and its effect on shareholder wealth.

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neobosenabae2004
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9 views2 pages

Tutorial 4 Questions

The document contains a series of seminar questions focusing on equity topics, including the fairness of share prices on the Alternative Investment Market, the pros and cons of issuing preference shares, and the concept of pre-emptive rights. It also discusses a specific case involving Jumpjet plc's rights issue and its potential impact on share price, as well as the advantages and disadvantages of obtaining a listing on the London Stock Exchange. Additionally, it includes calculations related to a rights issue and its effect on shareholder wealth.

Uploaded by

neobosenabae2004
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Seminar 4- Equity 2

QUESTION 1
Discuss whether the prices of shares traded on the Alternative Investment Market may
be considered to be fair prices.

QUESTIONS 2
What are the advantages and disadvantages of a company issuing preference
shares?

QUESTION 3
What are pre-emptive rights and why are they advantageous to shareholders?
Discuss the advantages and disadvantages of a rights issue to a company.

QUESTION 4
Jumpjet plc has 6,000,000 ordinary shares in issue and the company has been
making regular annual profits after tax of £3,000,000 for some years. The share
price is £5. A proposal has been made to issue 2,000,000 new shares in a rights
issue, at an issue price of £4.50 per share. The funds would be used to redeem
£9,000,000 of 12% debenture stock. The rate of corporation tax is 33%. What
would be the predicted effect of the rights issue on the share price, and would you
recommend that the issue take place?

QUESTION 5
Outline the advantages and disadvantages of obtaining a listing on the London stock
exchange.

QUESTION 6
Taking into account your findings in 5) above
a. assume your company has now decided to list and discuss ways in which they
may obtain a listing for completely new shares.
b. assume the company is not interested in raising new finance but still wants a
listing- what can they do?
QUESTION 7
A share is currently quoted at $2.40/share and the company is proposing to make a
one for four rights issue at $2/share.
a. You are required to calculate the theoretical ex-rights price (TERP).
b. With supporting Calculations, show whether shareholder’s wealth will be
increased with the rights issue.

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