About the Rights Issue Calculator
In a rights issue a company offers existing shareholders new shares in proportion to what they already own — for example 1 new share for every 4 held — at a discount to the market price. Because new shares are issued cheaply, the share price is expected to fall to a blended level called the theoretical ex-rights price (TERP). This rights issue calculator computes TERP, the value of a nil-paid right, your entitlement and its cost.
It is meant for shareholders deciding whether to take up their rights, sell them, or do nothing, and for students covering corporate finance. The comparison shows that taking up or selling rights leaves your wealth unchanged in theory, while letting them lapse loses the value of the rights.
TERP is a theoretical figure: it ignores what the company does with the money, market sentiment and dividends between the announcement and the ex-date. Fractional entitlements are rounded down, as most issuers do, and dealing costs are not included.
With the default inputs, the theoretical ex-rights price (terp) is $48.0000. Change any value above to recalculate instantly.
How to use the rights issue calculator
- 1Enter the current share price and the subscription price in the offer document.
- 2Enter the ratio, e.g. 1 new share for every 4 held.
- 3Enter how many shares you own.
- 4Read the TERP, the value of each right and your entitlement and cost.
- 5Compare taking up, selling and lapsing in the chart before the acceptance deadline.
Formula and method
The theoretical ex-rights price is the weighted average of the old shares at the cum-rights market price and the new shares at the subscription price. With a 1-for-4 issue at 40 when the shares trade at 50, four shares worth 200 plus one share bought for 40 make five shares worth 240, or 48 each.
A nil-paid right (the right to buy one new share) is worth the TERP minus the subscription price. Spread across the M existing shares that generate it, each old share loses P − TERP in price, which exactly equals the value of the rights attached to it. That is why taking up or selling the rights leaves a shareholder’s total wealth unchanged in theory, while letting rights lapse loses P − TERP on every share owned.
- P
- Cum-rights share price
- S
- Subscription price of the new shares
- N
- New shares offered per block
- M
- Existing shares per block
- TERP
- Theoretical ex-rights price
Worked examples
1-for-4 rights issue at $40, shares at $50
TERP = (4 × 50 + 1 × 40) ÷ 5 = $48. Each right lets you buy a $48 share for $40, so it is worth $8. Owning 1,000 shares entitles you to 250 new ones for $10,000. Letting the rights lapse would cost you $2 per share, or $2,000.
2-for-5 issue at 120 with shares at 150
TERP = (5 × 150 + 2 × 120) ÷ 7 = 141.43. Each nil-paid right is worth 21.43. With 750 shares you may buy 300 new ones for 36,000; ignoring the issue would cost about 6,428.57 in value.
3-for-10 issue with a fractional entitlement
TERP = (10 × 10 + 3 × 8) ÷ 13 = 9.54. 1,234 shares × 3/10 = 370.2, rounded down to 370 new shares costing 2,960. The offer is at a 20% discount to the cum-rights price.
Frequently asked questions
What is TERP in a rights issue?+
TERP (theoretical ex-rights price) is the price the shares should trade at once the rights are detached, assuming the market values the company at its old value plus the new cash raised. It is the weighted average of the old price and the subscription price.
Should I take up my rights?+
If you believe in the company and want to keep your percentage ownership, take them up. If not, sell the nil-paid rights in the market before trading ends. Doing nothing is usually the worst choice, because your shares fall in value without compensation.
What happens if I do nothing in a rights issue?+
Your rights lapse. Some companies sell lapsed rights in the market and pay any premium over the subscription price to non-accepting shareholders, but this is not guaranteed and may be small.
Does a rights issue dilute my shareholding?+
Only if you do not take up your rights. Shareholders who subscribe in full keep the same percentage of the company; those who sell or lapse their rights end up owning a smaller share.
Why do companies offer rights at a discount?+
A deep discount makes it attractive to subscribe and helps ensure the issue is fully taken up, even if the share price falls during the offer period. Because existing holders get the discount pro rata, it does not transfer value to outsiders.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.