Gce Model Questions Vol1 2024 Commerce Question 12

A company's shares are currently trading at ₦1,200. It announces a 1‑for‑4 rights issue at a subscription price that is \(20\%\) lower than the current market price. Existing shareholders receive one right per share and need four rights to subscribe for one new share. The rights can be sold on the market at their theoretical value. After the rights issue the share price adjusts to the theoretical ex‑rights price. The company also declares a dividend equal to \(5\%\) of the new market price per share. An investor holds 200 shares before the rights issue and subscribes to all the rights he is entitled to. Calculate (a) the total cash outlay the investor must pay to acquire the new shares, and (b) the dividend income he will receive after the rights issue, assuming the market price stabilises at the theoretical ex‑rights price.