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Consider the following statements regarding rights issue:
- It is an invitation to existing shareholders to purchase additional new shares in the company.
- It is issued to raise extra capital to meet its current financial obligations.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding rights issue: It is an inv...
The correct answer is option 'C' - Both 1 and 2.
Explanation:
A rights issue is a way for a company to raise additional capital by offering existing shareholders the opportunity to purchase new shares in the company. Let's examine each statement in detail:
1) It is an invitation to existing shareholders to purchase additional new shares in the company.
- This statement is correct. A rights issue is indeed an invitation to the existing shareholders of a company, giving them the right to purchase additional new shares at a discounted price. This allows the company to raise funds from its existing shareholders before offering the remaining shares to the public.
2) It is issued to raise extra capital to meet its current financial obligations.
- This statement is also correct. One of the primary reasons for a company to issue a rights issue is to raise additional capital. This capital can be used to meet the company's current financial obligations, such as paying off debts, funding expansion plans, or financing new projects. By offering new shares to existing shareholders, the company can generate funds without seeking external sources of financing.
In conclusion, both statements are correct. A rights issue is an invitation to existing shareholders to purchase additional shares in the company, and it is issued to raise extra capital to meet the company's current financial obligations.
Explanation:
A rights issue is a way for a company to raise additional capital by offering existing shareholders the opportunity to purchase new shares in the company. Let's examine each statement in detail:
1) It is an invitation to existing shareholders to purchase additional new shares in the company.
- This statement is correct. A rights issue is indeed an invitation to the existing shareholders of a company, giving them the right to purchase additional new shares at a discounted price. This allows the company to raise funds from its existing shareholders before offering the remaining shares to the public.
2) It is issued to raise extra capital to meet its current financial obligations.
- This statement is also correct. One of the primary reasons for a company to issue a rights issue is to raise additional capital. This capital can be used to meet the company's current financial obligations, such as paying off debts, funding expansion plans, or financing new projects. By offering new shares to existing shareholders, the company can generate funds without seeking external sources of financing.
In conclusion, both statements are correct. A rights issue is an invitation to existing shareholders to purchase additional shares in the company, and it is issued to raise extra capital to meet the company's current financial obligations.
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Consider the following statements regarding rights issue: It is an inv...
Indian Oil Corporation (IOC) plans to raise capital through rights issue of equity shares as part of a government's plan to infuse capital into three state-owned fuel retailers to fund their net zero carbon emission projects.
- A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
- This type of issue gives existing shareholders securities called rights.
- With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
- The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
- Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares.
- The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares' value.
- Dilution occurs because a rights offering spreads a company’s net profit over a larger number of shares. Thus, the company’s earnings per share, or EPS, decreases as the allocated earnings result in share dilution.
- Why Issue a Rights Offering?
- Companies most commonly issue a rights offering to raise additional capital.
- A company may need extra capital to meet its current financial obligations.
- Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money.
Hence both statements are correct.
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Consider the following statements regarding rights issue: It is an invitation to existing shareholders to purchase additional new shares in the company. It is issued to raise extra capital to meet its current financial obligations.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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