Discount factor and Rights issue: Difference between pages

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'''1.'''
A process of issuing new equity shares where they are offered first to existing shareholders in proportion to their existing shareholding.  


(DF).
Existing shareholders have, under law in the UK, pre-emption rights.


The number less than one which we multiply a single future cash flow by, to work out its present value as:
This means that they generally have first refusal on the purchase of any new equity shares.


PV = DF x future cashflow.
The periodic discount factor is calculated from the periodic [[yield]] as:
DF = (1 + periodic yield)<SUP>-n</SUP>
Commonly abbreviated as DF(n,r) ''or'' DF<SUB>n,r</SUB>
Where:
n = number of periods.
r = periodic yield (or periodic cost of capital).
<span style="color:#4B0082">'''Example 1: Discount factor calculation'''</span>
Periodic yield or cost of capital (r) = 6%.
Number of periods in the total time under review (n) = 1.
Discount factor = (1 + r)<sup>-n</sup>
= 1.06<sup>-1</sup>
= 0.9434.


== See also ==
* [[Bonus issue]]
* [[Dividend irrelevancy theory]]
* [[Headroom]]
* [[Initial public offering]]
* [[Nil paid]]
* [[Option premium]]
*[[Placing]]
* [[Pre-emption rights]]
* [[Theoretical ex-rights price]]
* [[Trombone]]


The greater the time delay, the smaller the Discount Factor.
[[Category:Accounting,_tax_and_regulation]]
 
[[Category:The_business_context]]
 
[[Category:Corporate_finance]]
<span style="color:#4B0082">'''Example 2: Increasing number of periods delay'''</span>
[[Category:Investment]]
 
[[Category:Long_term_funding]]
Periodic yield or cost of capital = 6%.
[[Category:Financial_products_and_markets]]
 
The number of periods delay increases to 2.
 
Discount factor = (1 + r)<sup>-n</sup>
 
= 1.06<sup>-2</sup>
 
= 0.8890.
 
''(A smaller figure than the 0.9434 we calculated previously for just one period's delay.)''
 
 
 
'''2.'''
 
Historically, the yield or cost of capital used for the purpose of calculating Discount Factors, as defined above. 
 
For example the 6% rate applied in definition 1. above.
 
 
== See also ==
* [[Annuity factor]]
* [[Certificate in Treasury Fundamentals]]
* [[Certificate in Treasury]]
* [[Compounding effect]]
* [[Compounding factor]]
* [[Cumulative Discount Factor]]
* [[Day count conventions]]
* [[Factors]]
* [[Present value]]

Revision as of 06:53, 23 August 2019

A process of issuing new equity shares where they are offered first to existing shareholders in proportion to their existing shareholding.

Existing shareholders have, under law in the UK, pre-emption rights.

This means that they generally have first refusal on the purchase of any new equity shares.


See also

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