Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Theoretical ex-rights price
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- May 30, 2015 at 8:14 am #250423
theoretical ex-right price does include issue costs? In pass year 12/09 QS3 and 06/08 QS2 , both theoretical ex-right price include issue costs but pass year 06/14 QS 4 din include issue costs. I am confused with this
May 30, 2015 at 9:59 am #250481For calculating the TERP itself, the issue costs are not relevant.
Where they are relevant sometimes is in calculating how much money is actually being raised in the first place, and this depends on the wording in the question.
In the June 2014 question, it specifically says that the issue costs will be met out of the cash raised – therefore the amount to be raised must be the amount needed for the project plus the amount of the issue costs.
May 30, 2015 at 2:09 pm #250543Then in what situation we have to includes the issue costs in calculating theoretical ex-right price?
May 30, 2015 at 2:40 pm #250612U mean in pass year June 2014, the theoretical ex-right price have to include issue costs? But in fact the answer din even include issue costs.
May 30, 2015 at 3:39 pm #250651I wrote before – the issue costs are never relevant in the actual calculation of the TERP.
They are only relevant (depending on the wording in the question) in calculating how much cash needs to be raised.
So in June 2014, the cash raised was 9.4M and we obviously need this to be able to calculate how many new shares are issued. If the issue costs were not paid of the amount raised then they would only have raised 9.2M from the issue and the number of shares issued would therefore have been different.
However, once you know how many shares are being issued and at what price, then issue costs are always completely irrelevant when actually calculating the TERP.
The free lectures might help you.
May 30, 2015 at 3:39 pm #250652I wrote before – the issue costs are never relevant in the actual calculation of the TERP.
They are only relevant (depending on the wording in the question) in calculating how much cash needs to be raised.
So in June 2014, the cash raised was 9.4M and we obviously need this to be able to calculate how many new shares are issued. If the issue costs were not paid of the amount raised then they would only have raised 9.2M from the issue and the number of shares issued would therefore have been different.
However, once you know how many shares are being issued and at what price, then issue costs are always completely irrelevant when actually calculating the TERP.
The free lectures might help you.
May 30, 2015 at 4:12 pm #250676My question here is why in pass year 12/09 QS3 and 06/08 QS2 TERP per share is including the issue costs. It should be deducted before arriving at TERP per share right?like what shown in June 2014 ?
May 31, 2015 at 9:19 am #250826Sorry – my fault for confusing you.
The examiners answer is not correct and should have been (56.4M + 9.4M) / (12M + 2.5M) = $4.54 per share (which is the same way is in the previous questions).
May 31, 2015 at 11:40 am #250924So could I think in this way in which the issue costs whether relevant or not in calculating TERP per share is depending on the situation?And if I want to get market capitalisation, I should exclude the issue costs right?
May 31, 2015 at 11:44 am #250929Correct 🙂
Sorry about confusing you before.
May 31, 2015 at 1:38 pm #250954Alright~ thank you
May 31, 2015 at 3:43 pm #251012You are welcome 🙂
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