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A company wishes to raise new financeusing a rights issue to invest in a new project offering an IRR of 10%
The following data applies:
* There are currently 1 million shares in issue at a current market value of $4 each.
* The terms of the rights issue will be $3.50 for 1 new share for 5 existing shares.
* Thecompany's WACC is currently 8%.
Whatistheyield-adjustedtheoreticalex-rightsprice (TERP)?
Give your answer to 2 decimal places.
$ ?
Suggested Answer: C
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33 comments · newest first
NU
Nu
12 months ago
Totally agree, $4.06 makes sense with those numbers!
EL
Elin
12 months ago
Wait, how can the TERP be higher than the current price? Seems off.
BR
Brittney
1 year ago
I think the TERP will be around $4.06.
DO
Dong
1 year ago
That IRR of 10% sounds promising!
AL
Albina
1 year ago
The current market value is $4, and the rights issue is at $3.50.
LA
Lashonda
1 year ago
I believe the rights issue price is lower than the current market price, which should affect the TERP. I hope I remember the calculations correctly!
LA
Laurel
1 year ago
I'm a bit confused about how to weigh the new shares against the existing ones. Do we just divide the total value by the total number of shares after the issue?
EL
Elenor
1 year ago
I remember a similar question where we had to find the TERP after a rights issue. I think we add the market value of existing shares to the value of new shares issued.
JI
Jina
1 year ago
I think we need to calculate the total value of existing shares and the new shares to find the TERP, but I'm not entirely sure about the formula.
CA
Carlota
1 year ago
Okay, let me see. A Spring Boot starter dependency is probably some kind of pre-configured set of dependencies that makes it easier to set up a Spring Boot project, right? I think option D sounds like the best description of that.
LI
Linette
1 year ago
I'm pretty confident I know the right answer here. Minimizing up-front effort is definitely the wrong approach for AI in a network.
JU
Julio
1 year ago
Okay, let's see. I know HTTP is for regular web traffic, not encrypted content. SMB is for file sharing, not encryption. I'm going to go with B - Secure copy.
AN
An
1 year ago
I'm a bit confused by this question. There are a few different options presented, and I'm not sure which one would be the best approach. I might start by reviewing the SQL Server Profiler-based traces, as that could provide some useful insights. But I'll need to think it through carefully before making a decision.
AI
Ailene
1 year ago
Wait, is the answer supposed to be $4.20? I'm pretty sure that's the correct answer. What do you mean, 'not a valid option'? Clearly, the exam writers need to brush up on their financial calculations.
DE
Dean
1 year ago
Oh, I see. Thanks for clarifying!
DE
Dexter
1 year ago
Actually, the answer is A) 4.06, 4.060. You were close though!
CO
Coral
1 year ago
No, I believe the correct answer is B) 4.06, 4.050
LO
Lore
1 year ago
I think the answer is A) 4.06, 4.060
BR
Britt
1 year ago
I'm just glad they're not asking me to calculate the intrinsic value of the company. That would be a real brain-teaser. This TERP thing seems like a piece of cake in comparison.
SH
Shenika
1 year ago
Hmm, I wonder if the IRR of 10% on the new project has any bearing on the TERP calculation. Maybe I should factor that in somehow. Time to break out the financial calculator!
GR
Gregoria
1 year ago
User 3: Let's use the financial calculator to factor in the IRR and get the accurate TERP.
BE
Bethanie
1 year ago
User 2: I agree, we should consider that when calculating the yield-adjusted theoretical ex-rights price.
ER
Erinn
1 year ago
User 1: I think the IRR of 10% on the new project does impact the TERP calculation.
JE
Jenelle
1 year ago
Hold on, I need to double-check the formula for TERP. Isn't it something like (Current Shares * Current Price + New Shares * Rights Issue Price) / (Current Shares + New Shares)? This seems straightforward enough.
HA
Hassie
1 year ago
Great, thanks for confirming. I'll go ahead and calculate the yield-adjusted theoretical ex-rights price using that formula.
EL
Elliot
1 year ago
So, for this scenario, the TERP would be $4.06.
JO
Jolanda
1 year ago
Yes, that's correct. The formula for TERP is (Current Shares * Current Price + New Shares * Rights Issue Price) / (Current Shares + New Shares).
CH
Christoper
1 year ago
Okay, let's see if I can figure this out. The current market value is $4 per share, and the rights issue price is $3.50 for 1 new share for 5 existing shares. With a WACC of 8%, the TERP should be somewhere between the two, right? I'll give it a shot.
AN
Angelica
1 year ago
B) 4.06, 4.050
LI
Lilli
1 year ago
A) 4.06, 4.060
KI
Kimbery
2 years ago
Do you think the answer is A) 4.06, 4.060 or B) 4.06, 4.050?
ME
Melodie
2 years ago
I agree, it helps determine the fair value of the company's shares after the rights issue.
KI
Kimbery
2 years ago
I think the yield-adjusted theoretical ex-rights price is important for investors.