ICANBusiness, Management and FinanceSources of Finance2020

Which of the following best describes a 'rights issue' as a source of finance for a quoted public company in Nigeria?

AAn offer of new shares to the general public at a discount to market price
BAn offer of new shares to existing shareholders in proportion to their current holdingsCORRECT
CA private placement of shares to institutional investors only
DA bonus issue of shares capitalised from retained earnings
AI
Toaster Teacher
Why the answer is B, and why the others tempt you.
A rights issue gives existing shareholders the pre-emptive right to subscribe for new shares in proportion to their existing holdings, typically at a price below current market price. This preserves existing shareholders' proportionate ownership. It is distinct from a public offer (open to all), a private placement (targeted at institutions), or a bonus issue (no new cash raised).
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