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Long-term finance

2.3 Issuing shares to current shareholders – Rights Issues

A common method of issuing shares is via a rights issue.
This is an issue of new shares AT A DISCOUNTED PRICE to current shareholders
based on their current shareholding.

JS made a 1 for 4 rights issue at a price of $2.10. The current market
price of a JS share is $2.50.

A 1 for 4 rights issue means that, for every 4 shares a shareholder
currently owns, they get the chance to buy one new share at a cheap
price ($2.10).

Definitions

Cum right price (CRP) – price of the shares immediately before the
rights issue

Theoretical ex rights price (TERP) – price of the shares immediately
after the rights issue

The exam may ask you to calculate the TERP after a rights issue has
occurred

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