Question

if a rights offer is used as a means of funding a positive net present value...

if a rights offer is used as a means of funding a positive net present value project, then shareholders should expect the price of their share to:
-remain constant as the value of the project will be offset by the issuance of the new shares
-decrease due to the additional shares being offered
-change but the directions of that change cannot be predicted
-change in direct relation to the change in the book value per share
-increase due to the increased value of the issuing firm

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Answer #1

The most appropriate answer among the given options is the 4th option i.e. the share price will change in direct correlation to the change in the book value per share. This is because the change in book value per share will take into account both the factors in play in this case which are 1) The dilution of share value due to rights issue 2) The increase in the value of the firm due to the positive NPV project. So the combined net effect of both of these opposite factors will lead to the change in book value per share and the price per share will change accordingly.

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