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

R_C = (P_R – S)/(N + 1)

2. Theoretical ex-right price

i) P_E = P_R – R_{C 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/P_E)

Where:

R_C: value of right

P_R: 5 day weighted average market price of the share
P_E: theoretical ex-right price

S  : subscription price of rights issue

N : number of rights to purchase one new share