Neco 2022 Commerce Question 45

A company's shares are currently priced at \(\text{₦}2{,}500\). The annual dividend is \(\text{₦}150\) per share and earnings per share (EPS) are \(\text{₦}300\). Dividends are expected to grow at 5\% per year and the required rate of return for the stock is 12\%. The company announces a rights issue with a subscription price of \(\text{₦}2{,}200\) for each new share, on a 1 new share for every 4 existing shares (1:4). Assuming the rights issue is fully subscribed, (a) calculate the theoretical ex‑rights price per share, and (b) compute the expected total return (dividend yield plus capital gain) for an investor who buys at the ex‑rights price and holds the share for one year, assuming the dividend growth continues.