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Hi Sir
I genuinely wasn’t aware it was a ‘pirate website’ – I just Googled an excerpt of the wording and paper reference, from my revision kit, I didn’t even know that past papers could be pirated! I have a full revision kit, with all of the questions (but most, as you point out, have been amended in some way and I thought this was just to make the whole question bank more coherent for the chapter splits), but it’s in a big PDF and so I was trying to make sure I could give you a link to look at the original. Apologies and noted.
But could I just add, my course provided has written that issue costs must be deducted from ‘existing share value and funds needed’ before dividing by the ex rights quantity of shares and so I am little confused!
Thank you,
Ali
What your notes say is correct.
Any issue costs will reduce the total value of the shares (which is usually what is required), and will therefore reduce the market value per share.
However this is a separate exercise from the TERP itself, the TERP ignores any other costs (and the 2009 question you mentioned does not have any issue costs). If there are any issues costs then the final market value will be the TERP (calculated in the normal way) less the issue costs per share – which is another way of writing the same thing that is in your notes.
Thank you – that makes a lot of sense, it’s just that my course notes include the deduction of issue costs in the formula for calculating TERP itself and so I’ll remove it (deducting issue costs) from the TERP formula and and use it when calculating the final market value only.
Thank you again.
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