ACCA FR · Chapter 10 · Question 5 of 9
Pintail Co makes a 1 for 4 rights issue at $1.50 per share. The market price per share immediately before the issue is $2.50. What is the theoretical ex-rights price?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $2.30
Explanation
TERP = (market value of existing shares + cash raised) / total shares after the issue = (4 x $2.50 + 1 x $1.50) / 5 = $11.50 / 5 = $2.30.
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