Ex-Right Price

Ex-right price refers to the new stock and Right-on refers to the old stock.
Ro = right-on price , Rx = Ex-right price ,
N = Number of old shares required for 1 new, i.e.
number of rights required to buy one new share of stock.
Sb = subscription price = price at which the right holder can purchase the new stock
Ns = number of new shares


N = Number of rights / Ns                             .........................1


Ns = Fund to be raised / Sb                          ...........................2



Value of right = Ro - Rx                             .............................3


Ex-right price i.e. Rx = ( Ro * N + Sb) / (N + 1)       .............4

Example:
XYZ ltd. has a funding requirement of 25 million rupees with 15 million shares of stock outstanding which are trading at Rs. 15.  Subscription price is Rs. 9 and 1 right is granted for each share.


Calculate:
1. Number of rights required to buy a new share of stock
2. Ex-right price
3. Value of right


1. Ns can be got by formula 2
 Ns = 25,000,000 / 9  = 2777778


Number of rights = number of shares as 1 right is granted for 1 share
By formula 1
N = 15,000,000 / 2777778 = 5.4


So 5.4 rights are required to purchase 1 new share of stock.


2. Rx can be found by formula 4
Rx = (15 * 5.4 + 9) / 6.4 = Rs. 14.0625


3. Value of right by forumula 3
V = Ro - Rx = 15 - 14.0625 = 0.9375