1. avatar says

    Dear John,

    What is the difference between Bonus issues (Scrip issues) and Scrip Dividends. How does a company decides whether to go for Bonus or Scrip dividends?

    As I understand from the notes, in both free shares are issued and no cash inflows results to the company.


    • Profile photo of John Moffat says

      Bonus issues are where shareholders are given free shares.

      Scrip dividends are bonus issues except that they are given the free shares instead of a cash dividend (and are usually given the choice as to whether to take cash or shares).

      Scrip dividends are popular because they are effectively a way of raising finance in that if shareholders take shares instead of cash dividends then the company is saving cash that they would otherwise have had to distribute.

      Bonus issues on their own do not raise any finance and are simply a way of reducing the market value per share on the stock exchange.

  2. avatar says

    Dear John.
    I have just divided 1.5 to 7.5 and got right answer : 20 %. I also checked this way using different figures and answers were same again. I wonder whether I’m on right way or not. Thanks in advance :)

  3. avatar says

    Dear John,
    The rights issue wont make the the company’s share price to dilute( lower), since after offering rights the value of share falls? It will give loss to the shareholder, aside from theoretical assumptions.

    • Profile photo of John Moffat says

      The share price will be lower per share, but everyone will have more shares bought at a low price.
      In theory shareholders will make no gain no loss.

      In practice (as I say in the lecture) the share price will usually be higher than the theoretical share price, and shareholders will make a gain. The reason is that usually they will be expecting that the money raised will be invested well, which will increase the value.

      (If shareholders thought that they would make a loss, then nobody would take up the rights!)

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