Thursday, 15 December 2011

Right Issues related calculations

Calculating:
a. initial value of rights
b. theoretical ex-right price; and
c. discount from the theoretical ex-rights price

1. Initial value of rights
RC = (PR – S)/(N + 1)

2. Theoretical ex-right price
i) PE = PR – RC or
ii) (market capitalization before + right proceeds)/(No. of shares before right issues + no. of additional shares arising from rights issue)

3. Discount from the theorectical ex-right price = 1 – (S/PE)

Where:
RC: value of right
PR: 5 day weighted average market price of the share
PE: theoretical ex-right price
S  : subscription price of rights issue
N : number of rights to purchase one new share