Rights Issue Valuation Calculator
Key Takeaway
A rights issue allows existing shareholders to buy new shares at a discount. The theoretical ex-rights price (TERP) helps investors evaluate whether exercising their rights or selling them is more profitable.
Rights Issue Valuation (TERP)
Calculate Theoretical Ex-Rights Price and rights value.
Theoretical Ex-Rights Price (TERP)
₹184.00
Value of Right Entitlement
₹64.00
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Theoretical Ex-Rights Price (TERP) Formula
Calculates the theoretical fair price of a stock after a rights issue and values the rights entitlement.
Worked Example: 1:4 rights issue at ₹120 (Existing price: ₹200)
Rights Issues: Valuing shareholder discount buying privileges
Sanjay owned shares in a firm trading at ₹200. The company launched a 1:4 rights issue at a discounted price of ₹120 per share, allowing existing holders to purchase additional equity.
He calculated the Theoretical Ex-Rights Price (TERP) to be ₹184 per share. This gave the rights entitlement a fair market value of ₹64, which Sanjay could either subscribe to or sell.
Rights issues allow companies to raise capital from existing shareholders by offering discounted shares, adjusting the ex-rights price.
Always subscribe to or sell your rights entitlements. Ignoring them will result in capital loss as the share price drops post-issue.
Frequently Asked Questions
What is a rights issue?
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company, usually at a discount to the market price.
What happens to the stock price after a rights issue?
The stock price typically drops to the Theoretical Ex-Rights Price (TERP), which is the weighted average of the old share price and the discounted new share price.
Can I sell my rights instead of buying the shares?
Yes. If the rights are 'renounceable', you can sell your rights entitlement (RE) on the open market to other investors for a cash profit.
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