This question asked candidates to calculate the theoretical ex rights price per share (TERP) for a proposed rights issue. Many candidates had difficulty dealing with the issue costs.

The question stated that issue costs of $200,000 would need to be met from the cash raised and it also stated that the company wanted to invest $9.2 million. The company therefore needed to raise $9.4 million in order to invest $9.2 million.

Having calculated the number of shares to be issued at $3.76 per share, the TERP could be found by adding the current total equity market value (given in the question) to the new finance to be invested, then dividing by the new number of shares. Many candidates failed to subtract the issue costs from the cash raised before calculating the TERP.

Although it was not necessary to know the form of the rights issue in order to calculate the TERP (it would have been 5 for 24), a number of answers approximated a form of the rights issue, thereby introducing unnecessary inaccuracy.