Which of the following statements about discounts on a rights issue are true? (1) The level of...
Which of the following statements about discounts on a rights issue are true?
(1) The level of discount is simply not relevant to the wealth of a shareholder as long as they accept the right. It is ignorance of the theory that encourages the offer of a discount in most cases.
(2) The bigger the discount the more likely a shareholder is to accept the rights offer in most cases.
Homework Answers
Answer- The Correct Answer is (2) The bigger the discount the more likely a shareholder is to accept the rights offer in most cases.
As if the Rights issue is given at Heavy Discounts to the Existing Shareholders in comparison to the market value the Shareholders are Likely to Exercise it.
The First Point is Incorrect because even if Shareholders do not Exercise the Right they can sell the Offer in the Open Market which will increase the Wealth of Shareholders.
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