May plc has 10 million ordinary shares in issue and its current market price is £8.00 per share. The company wishes to embark on a major expansion programme and, given its current high level of financial gearing, has decided to raise new equity of £4 million. The company is seeking your advice on a number of potential share issue methods:
(i) An rights issue at 25% discount to the current market price;
(ii) A deep discounted rights issue at 50% discount;
(iii) A placing of shares with institutions at 12 1⁄2% discount to the current market price.
Required:
a) Calculate the theoretical ex rights price under options (i) and (ii)