HF Holding Plc. has 40 million ordinary shares of 50p is in issue. These shares are currently valued on the London Stock Exchange at ￡1.80 per share. The company directors have decided to offer existing shareholders one new share for every four shares held at f1.35 i.e. a one-for-four issue. What is the theoretical ex-rights price? Select the correct answer from the option listed below. ￡1.82 ￡1.65 f1.71 ￡1.53

## Step1:Firstly, we need to understand how the theoretical ex-right price is calculated. The theoretical ex-right price (TERP) is the estimated price of a share after a rights issue. It is calculated by adding the current market capitalization of a company to the risen capital from a rights offering, and then dividing the result by the total number of shares in existence after the rights offering.## Step2:Let's estimate the given problem. The values are:Market price per share = . Allocated new share = . Rights offered for buying new shares = 4. We calculate the TERP by using the following formula ### **\(\text{TERP} = \frac{( \text{Market price per share} × \text{Rights offered} + \text{Allocated price per new share})}{\text{The total number of shares after the rights offered}}\)**.## Step3:Now let's perform the substitution and calculation of the obtained values.### **\(\text{TERP} = \frac{(1.80×4 + 1.35)}{(4 + 1)}\)**.Now, performing the calculation Multiplying in numerator comes about Dividing the numerator value by the numbers of shares .