• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

TERP

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › TERP

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • April 17, 2021 at 3:03 pm #618032
    adarsh1997
    Participant
    • Topics: 629
    • Replies: 278
    • ☆☆☆☆

    Hello John

    PG Co has a paid-up ordinary share capital of $4,500,000 represented by 6 million shares of 75c each. It hasn o loan capital. Earnings after tax in the most recent year were $3,600,000. The P/E ratio of the company is 15.
    The company is planning to make a large new investment which will cost $10,500,000, and is considering raising the necessary finance through a rights issue at 800c.
    Required
    Calculate the theoretical ex-rights price, and state what factors in practice might invalidate your
    calculation.

    In order to raise $10,500,000 at a price of 800 cents, the company will need to issue an additional 1,312,500 ($10,500,000/$8.00) shares.
    Following the investment, the total number of shares in issue will be 7,312,500 (6,000,000 +
    1,312,500). At this point, the total value of the company will be:
    (6m x $9) + $10,500,000 = $64,500,000
    The theoretical ex-rights price will therefore be $64.5m/7.3125m = $8.82.

    1. My issue is with the “At this point, the total value of the company will be: (6m x $9) + $10,500,000 = $64,500,000”
    – Normally the $9 is the EPS and I want to know why this figure has being used to calculate the value of the existing share.

    Thanks

    April 17, 2021 at 4:47 pm #618038
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51551
    • ☆☆☆☆☆

    $9 is certainly not the EPS and I do not know why you are saying this.

    The EPS is 3,600,00 / 6,00,000 = $0.60.

    The PE ratio is 15, and therefore the current MV of the shares is 15 x $0.60 = $9 per share.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • cBarsoum on The Stages of an Audit – Appointment – ACCA Audit and Assurance (AA)
  • John Moffat on Revaluation Reserve – ACCA Financial Accounting (FA) lectures
  • John Moffat on Revaluation Reserve – ACCA Financial Accounting (FA) lectures
  • CHICCO.J on ACCA AB Chapter 1 – The nature and structure of organisations – Questions
  • Joanne94 on Irrecoverable Debts and Allowances Example 3 – ACCA Financial Accounting (FA) lectures

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy