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Business valuations and market efficiency

Chapter 15

Question 1

TERP

Hicks Co, which has an issued share capital of 5 million shares each priced at
$10.50, makes a rights issue of one new share for every 4 currently in issue.
The issue price is $9.50.

Calculate the TERP.

MV of shares currently in issue = 5m × $10.50 = $52.5m

Number of new shares issued = 5m/4 × 1 = 1.25m new shares.

Proceeds from share issue = 1.25m × $9.50 = $11.875m

TERP = ($52.5m + $11.875m)/(5m + 1.25m) = $10.30 per share

497