ACCA FM · Chapter 10 · Question 2 of 11
A company makes a 2 for 5 rights issue at $2.50 per share when its share price is $3.50 cum rights. What is the theoretical value of the rights attaching to EACH EXISTING share (to the nearest cent)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $0.29
Explanation
TERP = (5 x 3.50 + 2 x 2.50) / 7 = 22.50 / 7 = $3.2143. Value of a right per new share = TERP - issue price = 3.2143 - 2.50 = $0.7143. Each existing share carries 2/5 of a right, so value per existing share = 0.7143 x 2/5 = $0.2857, or $0.29 to the nearest cent.
More Sources of finance, Islamic finance and dividend policy MCQs
- Q4In Islamic finance, which arrangement involves a financial institution buying an asset and selling it to the customer at an agreed…
- Q5Which Islamic finance instrument is the equivalent of a lease, where the financier retains ownership of the asset and receives rental…
- Q6Which of the following best describes Sukuk?
- Q7What is the key difference between Mudaraba and Musharaka contracts?
- Q8According to Modigliani and Miller's dividend irrelevance theory, which of the following is correct?