TERP Calculator
Theoretical Ex-Rights Price & Rights Valuation Tool
Calculator Inputs
:
Calculation Results
Enter values above and click "Calculate TERP" to see results
What is Theoretical Ex Rights Price (TERP)?
The Theoretical Ex Rights Price (TERP) is the estimated price at which a company's shares should trade after a rights issue is completed. It represents the fair value of the share after adjusting for the dilution effect of new shares issued at a discount to the current market price.
Key Points:
- Dilution Effect: New shares issued typically reduce the value per existing share
- Fair Value: TERP represents the equilibrium price after rights issue
- Investment Decision: Helps investors decide whether to exercise rights or sell them
- Market Efficiency: Actual market price should converge towards TERP
How to Calculate Theoretical Ex Rights Price (TERP)?
TERP Formula:
TERP = (Market Value Before + Cash Raised) ÷ (Shares Before + New Shares)
TERP = (Market Value Before + Cash Raised) ÷ (Shares Before + New Shares)
Detailed Calculation:
TERP = [(Current Price × Shares Outstanding) + (Rights Price × New Shares)] ÷ (Shares Outstanding + New Shares)
TERP = [(Current Price × Shares Outstanding) + (Rights Price × New Shares)] ÷ (Shares Outstanding + New Shares)
Step-by-Step Process:
- Calculate Market Value Before: Current Price × Shares Outstanding
- Calculate Cash Raised: Rights Price × New Shares Issued
- Calculate Total Value: Market Value Before + Cash Raised
- Calculate Total Shares: Shares Outstanding + New Shares
- Calculate TERP: Total Value ÷ Total Shares
How to Calculate Value of Right & Value per Right
Value of Right:
Value of Right = Current Market Price - TERP
Value of Right = Current Market Price - TERP
Value per Right:
Value per Right = Value of Right ÷ Rights Ratio
Value per Right = Value of Right ÷ Rights Ratio
Understanding Rights Value:
- Value of Right: The benefit gained by exercising the right vs. buying in the market
- Value per Right: The monetary value of each individual right
- Trading Rights: Rights can be sold to other investors if not exercised
- Arbitrage: Price differences create trading opportunities
What is a Rights Issue?
A Rights Issue is a method companies use to raise additional capital by offering existing shareholders the right to purchase additional shares at a discounted price, typically below the current market price.
Advantages
- Existing shareholders maintain ownership percentage
- Shares offered at discount to market price
- No dilution if rights are exercised
- Rights can be sold if not exercised
Considerations
- Share price typically falls after announcement
- Requires additional investment from shareholders
- Market may view as sign of financial distress
- Complexity in valuation and decision-making
Examples of TERP Calculations
Example 1: Basic Rights Issue
Company ABC announces a 1:3 rights issue
- Current market price: $30 per share
- Rights issue price: $20 per share
- Shares outstanding: 1,000,000
- New shares to be issued: 333,333 (1,000,000 ÷ 3)
TERP = [($30 × 1,000,000) + ($20 × 333,333)] ÷ (1,000,000 + 333,333)
TERP = [$30,000,000 + $6,666,667] ÷ 1,333,333
TERP = $36,666,667 ÷ 1,333,333 = $27.50
TERP = [$30,000,000 + $6,666,667] ÷ 1,333,333
TERP = $36,666,667 ÷ 1,333,333 = $27.50
Value of Right: $30 - $27.50 = $2.50 per share
Value per Right: $2.50 ÷ 3 = $0.83 per right
Example 2: Large Rights Issue
Company XYZ announces a 2:5 rights issue
- Current market price: $50 per share
- Rights issue price: $35 per share
- Shares outstanding: 2,000,000
- New shares to be issued: 800,000 (2,000,000 × 2/5)
TERP = [($50 × 2,000,000) + ($35 × 800,000)] ÷ (2,000,000 + 800,000)
TERP = [$100,000,000 + $28,000,000] ÷ 2,800,000
TERP = $128,000,000 ÷ 2,800,000 = $45.71
TERP = [$100,000,000 + $28,000,000] ÷ 2,800,000
TERP = $128,000,000 ÷ 2,800,000 = $45.71
Value of Right: $50 - $45.71 = $4.29 per share
Value per Right: $4.29 ÷ 2.5 = $1.72 per right
How to Save Money with Rights Issues
Exercise Your Rights
- Purchase shares at discounted price
- Maintain your ownership percentage
- Benefit from potential upside after rights issue
- Lower average cost basis for your holdings
Sell Your Rights
- Generate immediate cash without additional investment
- Avoid dilution of existing holdings
- Profitable if rights trade above intrinsic value
- Useful when cash flow is limited
Partial Exercise
- Exercise some rights, sell others
- Balance cash outflow with rights value
- Maintain partial ownership increase
- Hedge against market uncertainty
Arbitrage Opportunities
- Buy rights if trading below theoretical value
- Sell rights if trading above fair value
- Monitor price discrepancies during rights period
- Consider transaction costs in calculations
Complete Guide to Rights Issues
Rights Issue Timeline
- Announcement Date: Company announces rights issue details
- Ex-Rights Date: Shares begin trading without rights attached
- Record Date: Shareholders on record receive rights
- Rights Trading Period: Rights can be bought/sold in market
- Exercise Period: Rights holders can exercise their rights
- Expiry Date: Final date to exercise rights
- Settlement: New shares issued and cash collected
Decision Framework
Questions to Consider:
- Do I have sufficient cash to exercise my rights?
- Do I want to maintain my ownership percentage?
- Is the company's future outlook positive?
- Are the rights trading at fair value in the market?
- What are my tax implications for each option?
- How will this affect my portfolio diversification?
Risk Considerations:
- Market Risk: Share price may decline further after issue
- Execution Risk: Company may not use funds effectively
- Liquidity Risk: Rights may have limited trading volume
- Timing Risk: Market conditions may deteriorate
- Opportunity Cost: Alternative investments may offer better returns
Best Practices:
- Calculate TERP before making decisions
- Monitor rights trading prices vs. theoretical value
- Consider your overall investment thesis for the company
- Factor in transaction costs and taxes
- Don't let rights expire worthless
- Seek professional advice for large positions
- Understand the company's use of proceeds
- Monitor post-issue trading patterns
| Feature | Details |
|---|---|
| Price | Free |
| Rendering | Client-Side Rendering |
| Language | JavaScript |
| Paywall | No |
Checkout More Finance Tools!
Online Baumol's Optimal Cash Model Calculator Tool
Theoretical Ex-Rights Price (TERP) Calculator
Simple Online Business Startup Cost Calculator Tool
AI Financial Statement Summary Generator Tool: Interactive AI Financial Co-Pilot
Online Discounted Cash Flow (DCF) Calculator Tool
Online Personal Cash Flow Calculator Tool
Advanced Online Salary Hike Calculator Tool
Onine Simple Salary Hike Calculator FREE Tool
Simple Online 8th Pay Commission Calculator Tool
Online Miller-Orr Model Calculator: Find Optimal Cash Level Tool
About This Tool
📊 Key Features:
Advanced TERP Calculator Functions:
- TERP Calculation: Precise calculation of Theoretical Ex Rights Price
- Value of Rights: Calculates total value and per-share value of rights
- Rights Ratio Analysis: Supports any rights ratio (e.g., 1:3, 2:5, etc.)
- Multiple Scenarios: Compare different subscription prices
- Percentage Analysis: Shows discount/premium percentages
- Investment Impact: Calculates total investment required
Financial Calculations Include:
- Theoretical Ex Rights Price (TERP)
- Value of Right (Total)
- Value of Right per Share
- Rights Premium/Discount
- Total Investment Required
- Post-Rights Market Value
- Dilution Effect Analysis
Comprehensive Educational Content:
- What is Theoretical Ex Rights Price (TERP)? - Complete explanation
- How to Calculate TERP? - Step-by-step methodology with formulas
- Examples of TERP Calculations - Real-world scenarios and case studies
- How to Save Money - Strategies for rights issue investments
- Value of Right Calculations - Detailed explanation of rights valuation
- What is Right Issue? - Comprehensive guide to rights offerings
- Complete Guide - Full tutorial on rights issues and TERP analysis
Advanced Financial Features:
- Formula Display: Shows the exact mathematical formulas used
- Step-by-Step Breakdown: Transparent calculation process
- Multiple Currency Support: Flexible input formatting
- Scenario Comparison: Compare multiple rights issue scenarios
- Investment Decision Support: Helps evaluate whether to exercise rights
- Risk Assessment: Highlights key financial metrics
User Experience Features:
- Highlighted Results: Clear, prominent display of TERP and rights value
- Calculation Transparency: Shows exactly how all results are calculated
- Reset/Clear Button: Easily start new calculations
- Export Options: Print or save calculations
- Input Validation: Prevents errors and guides proper usage
- Financial Tooltips: Helpful explanations of financial terms
- Visual Charts: Graphical representation of rights impact
Professional Tools:
- Rights Exercise Decision Matrix
- Dilution Impact Calculator
- Market Price vs TERP Comparison
- Investment Return Analysis
- Rights Trading Strategy Guide
This tool provides everything investors and financial professionals need to:
- Calculate accurate TERP values
- Evaluate rights issue investments
- Understand the value of their rights
- Make informed decisions about exercising or selling rights
- Analyze the dilution effect on their holdings
0 Comments