How do you calculate the theoretical ex-rights price?

Answer 1

The theoretical ex-rights price (TERP) is calculated by taking the total value of the existing shares and the new shares being issued, then dividing by the total number of shares after the rights issue. The formula is:

[ \text{TERP} = \frac{(N \times P) + (M \times S)}{N + M} ]

where ( N ) is the number of existing shares, ( P ) is the price per existing share, ( M ) is the number of new shares, and ( S ) is the subscription price for the new shares. This provides the expected share price once the rights issue is completed.