SOURCES OF FINANCE | BUSINESS FINANCE | NTA UGC NET COMMERCE | OCT 2020

A Ltd has a share capital of Rs.5000 equity shares of Rs.100 each having a market value of Rs.150 per share. The company wants to raise additional funds of Rs.1,20,000& offers to the existing shareholders the right to apply for new share at Rs.120 for every five shares held. What would be the value of right?

• 5
• 6
• 6.5
• 5.5

Ans : (a)

Rights share, also known as the Rights issue, is an offer given to the extant shareholders of a company to purchase additional shares. Under this offer, the company provides its shareholders with securities called rights.

Value of right =Market Price – Price of right shares

                                      N + 1

                           = 150 -120    

                                5 + 1

                                 = 30/6

= 5