june 2008 TERP

Please tell me the name of the question so that I will then be able to find it, and answer your question.

sir < q 2 THP CO june 2008

You do not subtract the issue costs to get the TERP (and it has not been done in this question - the TERP is $4.56 per share). However this is the theoretical price. The actual price is lower because of the issue costs.

i am confused in issue cost where to subract or add it .. TERP will include issues cost ? impact on market capitalisation ? like dec 09 NG CO Q3 they added issue cost where as it THP they subract NG CO The amount of equity finance to be raised in dollars = 5m + 0·312m = $5·312m

They are two separate things. In NG Co, the issue costs were added in order to calculate the total finance to be raised, and then they calculated the TERP. In THP, it didn't affect the TERP at all. But here the question asked for the market capitalisation and so the actual share price will end up being a little less than the theoretical price (the TERP). The issue costs were being paid out of the finance that was raised.

so in calculating term TERP issue cost will not subract or add.? calculating market cap we will subract calculating finance raised we will add?

Correct, except with regard to calculating the finance raised, it depends on the wording of the question whether or not the issue costs are to be added.

one more question , in DEC 12 q3 BKB for calculating cost of prefeernce share why they didnt took tax? Q. 5% Preference shares ($1 nominal value) 10m the ex-dividend market value of the preference Shares is $6·25 million examiner working : Kp = 100 x (0·05 x 10m/6·25m) = 8% my wrkng : .05 x 70% = .035 6.25/10=.625 =.035/.625 = 5.6 why tax not taken up ?

Dividends are not allowable for tax, and so tax is not relevant. (It is only when dealing with bonds/debentures/loan stock that we deal with the tax relief on the interest). Our free lectures on the cost of capital will help you.