Final answer:
The value of the right for ABC Co's 4-for-9 renounceable rights issue offer is $0.44 per right, calculated using the theoretical ex-rights price and the old share price.
Step-by-step explanation:
The value of the right to purchase additional shares in a renounceable rights issue can be determined by using the formula: Value of right per share = (Price before offering - Theoretical ex-rights price) / (Number of rights needed to buy one new share + 1).
To calculate the theoretical ex-rights price (TERP), we use the formula: TERP = [ (Old shares x Old price) + (New shares x Issue price) ] / (Old shares + New shares).
In this case, for ABC Co:
- Old shares = 9
- New shares = 4
- Old price = $35.82
- Issue price = $33.19
Using the formula: TERP = [ (9 x $35.82) + (4 x $33.19) ] / (9 + 4) = $35.1855 (rounded to the nearest cent).
Now we calculate the value of the right per share: Value of right = ($35.82 - $35.1855) / (4/9 + 1) = $0.6345 / (13/9) = $0.4396 per right. Rounded to the nearest cent, the value of the right is $0.44.