Posted by: Pdfprep
Post Date: March 18, 2021
CORRECT TEXT
A company wishes to raise new finance using 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.
• The company’s WACC is currently 8%.
What is the yield-adjusted theoretical ex-rights price (TERP)?
Give your answer to 2 decimal places.
$ ?
Answer: 4.06, 4.060
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