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John Moffat.
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nmenon3
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I have a doubt about a TERP question.
ABC Ltd has decided to raise capital via the right issue. the share price is currently $ 5.5 and ABC intends to raise $ 5m. there are currently 6.25m shares and ABC is offering a 1 for 5 rights issue. how do calculate the TERP for this?
Thank you
John Moffat
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A 1 for 5 rights issue will mean that they are issuing 6.25m / 5 = 1.25m shares.
Since they are raising $5M the issue price for the rights must be 5/1.25 = $4.00 per share.
You then calculate the TERP in the way I explain in my free lectures on this 🙂
nmenon3
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Thank you for the clarification.
I had one more doubt in the TERP calculation.
the question is,
A company currently has 10 m $! shares in issue with a market value of $3 per share. The company wishes to raise new funds using a 1 for 4 rights issue. The resulting theoretical ex- rights price per share has been calculated as $2.8. How much new finance was raised?John Moffat
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Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers because they have answers and workings.
You know the total market value of all the shares in issue at the moment.
You can calculate how many new shares will be issued and therefore the new total number of shares and the new total market value.
The difference between the new total market value and the old total market value must be the cash raised.
nmenon3
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