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Financing – Equity finance
More details on rights issues
3.1 Theoretical ex rights prices (TERP)
Key formulae:
TERP = theoretical value of shares immediately after a rights issue
1
TERP = [(N × cum rights price) + issue price]
N + 1
Theoretical value of a right
PER NEW SHARE = TERP – issue price
PER EXISTING SHARE = (TERP – issue price)/N
where N = number of rights required to buy one share.
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