Xero Limited is currently trading at $130 per share with 150 million shares on issue. It announces a 2 for 5 non-renounceable rights issue with a subscription price of $80 per share. Which of the following statements related to the rights issue is correct, based only on the information above? (round to the nearest 2 digits)Group of answer choicesInstead of exercising the right, shareholders can choose to sell the right to 1 new share for $35.71 on the exchange (ignore other pricing factors).The theoretical ex-rights price for Xero is $105.25Xero is aiming to issue 60 million shares from the rights issue.None of the other statements related to the rights issue is correct.More than one of the other statements related to the rights issue is correct.
Question
Xero Limited is currently trading at 80 per share. Which of the following statements related to the rights issue is correct, based only on the information above? (round to the nearest 2 digits)Group of answer choicesInstead of exercising the right, shareholders can choose to sell the right to 1 new share for 105.25Xero is aiming to issue 60 million shares from the rights issue.None of the other statements related to the rights issue is correct.More than one of the other statements related to the rights issue is correct.
Solution
The correct statement based on the information provided is "Xero is aiming to issue 60 million shares from the rights issue."
Here's how we arrive at this:
First, we need to understand what a 2 for 5 rights issue means. This means that for every 5 shares a shareholder owns, they have the right to buy 2 more shares.
Xero Limited has 150 million shares on issue. So, in a 2 for 5 rights issue, they are offering 2/5 of 150 million shares, which equals 60 million shares. Therefore, Xero is aiming to issue 60 million shares from the rights issue.
The other statements can't be confirmed with the information provided. The theoretical ex-rights price would require more information to calculate, and the option to sell the right on the exchange for a specific price isn't mentioned in the information provided.
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