Gce Model Questions Vol1 2021 Commerce Question 30

A company's ordinary shares are currently trading at \(\text{₦}1{,}200\). The firm is expected to pay a dividend of \(\text{₦}90\) next year, and dividends are forecast to grow at a constant rate of 5 % per year thereafter. Investors require a return of 12 %. The company announces a 1‑for‑4 rights issue at a subscription price of \(\text{₦}800\) per share, with the rights being tradable. (a) Calculate the theoretical ex‑rights price of the share after the rights issue. (b) Assuming an investor buys the rights at their market value and exercises them, what is the expected total return on the share over the next year, based on the dividend forecast? Express the return as a percentage (to one decimal place).