Question

1. Distinguish between the financial objectives of a rights issue and a share option.

(4 marks

Answer 1

Rights issue is method of raising funds where the shares are offered to existing shareholders at a discounted price . Majorly rights shares are used for the below objectives.

1) to payoff debt in the balance sheet

2) needs funding for new acquisitions

3)Raising debt is expensive raising capital thrfough right shares is less expensive.

Share option on the other hand is an option given to employees to purhcase the shares of company ant predetermined price and at discount. these help employees to be motivated and to align the interest of management with the company's interest.

answered by: anonymous