Module III· ECM — Follow-on, ABB, Rights IssueIntermediate
Question
How do you calculate the theoretical ex-rights price (TERP)?
Answer
TERP is the weighted average share price after a rights issue. Formula: TERP = (old shares x old share price + new shares x subscription price) / total shares after issue. The value of a right equals old share price minus TERP, adjusted for the subscription ratio. TERP measures dilution mechanics.