Hi my Dear tutor, I have the same type of question but I would like to compare them with
one another by showing one important detail for me and I will seperately solve it and will want to show it.
Question 31
Before issue of 5 shares @ 5$======25$
After issue of 1 share @ (5$*0.8)-4$$==4$
TERP=29$/6 shares=4.83
Alternative way
cash raised=2000$
right issue shares=2000/4=500 or existing shares in number 2500/1$=250081/5=500
existing shares=2500/1$=2500
Total shares after market listing=500+2500=3000(ordinary shares)
TERP=500*4$+2500*5$/500+2500=4.83$
I know debit and credit does not need here but I just would like to touch my main point for the second question.
Debit cash-2000
Credit SC--500 (500*1$)
Credit SP-1500 (500*3$=(4$-1$)
In the Question 4 there has not been given ex-dividend share price like compared to Question 32.
Net cash raised after issue cost=3200000
Total cash raised before issue cost=3200000+100000=3300000$
Right Issue shares=3300000/2.50=1320000
Existing shares=5000/0.50=10000000
Total shares after market listing=10000000+1320000=11320000
Let us find ex-dividend market price per total shares=1600000*(1.03)/0.09-0.03=27466667
Ex-dividend market price per share=27466667/10000000(existing shares number)=2.75$
If I find here ex-dividend market price per share then
TERP=1320000*2.50+2.75$*10000000/11320000=2.72$
Debit cash raised-3300000$
Credit SC-660000-(1320000*0.50$)
CreditSP-2640000-(1320000*(2.50$-0.50$-nominal value)
In the question 31, ex-dividend market price is given but in the question 4 this figure has not been given and I found it(ex-div market price per share) in the question 4 and divided it into number of ordinary shares before right issue shares addition.is this right?Based on this I found TERP in the qustion 4. I do not know my approach in the question is right to find it or not but the question does not ask itself to find TERP. I solved all these two questions and there was not any problem but for analysis I would like to know it.
Thanks in advance
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2018 June question 31 and 2013 june question 4
6y ago#1But what is it you want to know? You say that you have agreed with the answer so I don't understand the problem.
Please do not expect me to type out all my lectures here :-)
In the question 31, ex-div market price per share has been given and therefore TERP can be found but in the question 4 the ex-div market price per share has not been given and I would like to know that did I calculate it correctly and did i find TERP correctly?
I do not expect from you you type the whole lecture here I just wrote both question for comparison.
6y ago#4In question 4 there is no rights issue and therefore no TERP.
Rights issues are issues of shares to existing shareholders. This is an issue of new shares to new shareholders.
Dear Tutor, I found et us find ex-dividend market price per total shares=1600000*(1.03)/0.09-0.03=27466667
Ex-dividend market price per share=27466667/10000000(existing shares number)=2.75$
I found here current ex div market price per share by dividend valuation method then I calculated TERP. I would like that is this possible to find it in this way?
6y ago#6But that is what the examiner has done in his answer, so of course it is possible (except that as I replied before, it is not the TERP because there is no rights issue!!!)
Yes it is not right issue share price,it is a form of placing or initial public offer and i think it is placing as it is much cheaper than initial public offer because now I read it carefully but anyway.
Usually right issue share price is given discount on current market share price but in this example what I confused is that I took total dividends of 1600000(1.6mln) multiplied it by (1+0.03) divided it into cost of equit of 0.09(9%)-growth rate of 0.03 (3%) and found current ex dividend market share in total which is 27466667 and divided it into existing shares of 10 milion(5000000/0.50$)=and found current market share price 2.75 $
given new share price of 2.50$ is still below 2.75$(current market price per share)-As i mentioned above if it is cheaper initial public offer and its price is below current market share price then it proves that it is placings not IPO.
Understood now.
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