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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Please help me with this Q
In your lectures Ex#1 of the rights issue.
We get the value of the right price after deducting the issue cost from the TERP which is $1.60 in your example.
Please tell me whether the TERP is the new market value of $4.60 for the shares in the market after the right issue, whereas the right value is $1.60. Does that mean the value of the ordinary shares is $3 (4.60 – 1.60)?
No.
The TERP is the new market value of all the shares in issue after the rights issue.
$3 is the amount that shareholders have to pay for each new share if they take up the rights.
If they choose not to take up the rights and buy the new shares, then they can sell the rights to someone else (and they can buy the new shares for $3). If they do sell the rights to someone else then in theory the someone else would be prepared to pay $1.60 for them.