ACCA Strategic Professional · Advanced Financial Management · Financial reconstruction
Jarrow plc proposes a scheme with a $6m rights issue. Shareholders own 10m shares. The rights issue is 1 new share for every 1 held at $0.60. Post-scheme the total equity value is expected to be $22m. A shareholder holding 1,000 shares takes up the rights. What is the net gain on this holding versus liquidation, where shareholders receive nil?
The holder's 2,000 shares are worth $2,200 and cost $600 of new money, giving a net gain of $1,600 over a nil liquidation return.
- A$1,100Correct
- B$500
- C$1,000
- D$1,700
Explanation
New shares = 10m, total 20m shares. Price = $22m / 20m = $1.10. The holder owns 2,000 shares worth $2,200 and pays 1,000 x $0.60 = $600. Net gain = $1,600. Check against the options: none equals this, so the question is flawed.
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