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CIMAPRA19-F03-1 Exam - Topic 3 Question 68 Discussion

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 $3.50 for 1 new share for 5 existing shares.* Thecompany's WACC is currently 8%.Whatistheyield-adjustedtheoreticalex-rightsprice (TERP)?Give your answer to 2 decimal places.$ ?
A) 4.06, 4.060
B) 4.06, 4.050

CIMAPRA19-F03-1 Exam - Topic 3 Question 68 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 68
Topic #: 3
[All CIMAPRA19-F03-1 Questions]

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.

$ ?

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Suggested Answer: C

by Regenia at Apr 24, 2023, 03:53 PM

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Nu
10 months ago
Totally agree, $4.06 makes sense with those numbers!
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Elin
10 months ago
Wait, how can the TERP be higher than the current price? Seems off.
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Brittney
10 months ago
I think the TERP will be around $4.06.
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Dong
11 months ago
That IRR of 10% sounds promising!
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Albina
11 months ago
The current market value is $4, and the rights issue is at $3.50.
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Lashonda
11 months 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!
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Laurel
11 months 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?
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Elenor
11 months 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.
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Jina
11 months 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.
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Carlota
11 months 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.
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Linette
11 months 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.
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Julio
11 months 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.
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An
11 months 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.
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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.
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Dean
1 year ago
Oh, I see. Thanks for clarifying!
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Dexter
1 year ago
Actually, the answer is A) 4.06, 4.060. You were close though!
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Coral
1 year ago
No, I believe the correct answer is B) 4.06, 4.050
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Lore
1 year ago
I think the answer is A) 4.06, 4.060
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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.
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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!
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Gregoria
1 year ago
User 3: Let's use the financial calculator to factor in the IRR and get the accurate TERP.
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Bethanie
1 year ago
User 2: I agree, we should consider that when calculating the yield-adjusted theoretical ex-rights price.
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Erinn
1 year ago
User 1: I think the IRR of 10% on the new project does impact the TERP calculation.
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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.
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Hassie
1 year ago
Great, thanks for confirming. I'll go ahead and calculate the yield-adjusted theoretical ex-rights price using that formula.
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Elliot
1 year ago
So, for this scenario, the TERP would be $4.06.
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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).
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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.
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Angelica
1 year ago
B) 4.06, 4.050
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Lilli
1 year ago
A) 4.06, 4.060
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Kimbery
1 year ago
Do you think the answer is A) 4.06, 4.060 or B) 4.06, 4.050?
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Melodie
1 year ago
I agree, it helps determine the fair value of the company's shares after the rights issue.
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Kimbery
1 year ago
I think the yield-adjusted theoretical ex-rights price is important for investors.
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