Question 1

**Section A**

Nordic Timber PLC, a cross-border multinational, is raising capital via a 1-for-4 rights issue. The current market price of the shares is $4.50. The issue price for the new shares is set at $3.00.

What is the Theoretical Ex-Rights Price (TERP) per share?

Accepted Answer

Calculate the total value of the shares required to get a new share (cum-rights price × number of existing shares needed). Add the cost of the new share. Divide the total value by the total number of shares (existing + new).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Dividing by 4 instead of 5, which gives $5.25 (incorrect logic).

Section A

Nordic Timber PLC, a cross-border multinational, is raising capital via a 1-for-4 rights issue. The current market price of the shares is $4.50. The issue price for the new shares is set at $3.00.

What is the Theoretical Ex-Rights Price (TERP) per share?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 5

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