Valley plc has issued share capital of 2 million ordinary shares, par value £1.00. The board of the company has decided it needs to raise £1m, net of issue costs, to finance a new product. It has been suggested that the additional finance be raised by means of a 1 for 4 rights issue. The issue price will be at a 20 per cent discount to the current market price of £2.75 and issue costs are expected to be £50 000. Calculate and explain the following:
The theoretical ex-rights price per share