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Dear Sir,
Am unable to solve this question.
EP Plc have a right issue on 1 september 2005 in the ratio 1:4.The cum rights price before the RI was $ 8.70 per share .The rights price is $ 6 pe share .When restating comparatives what would be the reciprocal figure?Hi, have you read the notes for eps? Even BPP and Kaplan have straightforward methods of approaching this.
If I understand correctly, you want to restate the eps for the previous year in order to make it comparable. Since there was a rights issue in the current year, you must multiply the previous years eps by the inverse of the rights fraction. The rights fraction is calculated thusly: MV of share/TERP. The MV of the share is what it was before the rights issue, in this case, it was 8.70.
The Theoretical Ex Rights Price is found like this:
For every four shares we have: 4 @8.70 = 34.80
We get : 1 @ 6 = 6Add them up and we get 5 shares for (34.8 + 6) 40.80.
So the TERP will be 40.80 divided by 5 = 8.16So there, you have everything you need to get the answer now. Check the answers to make sure its correct. Hope this helps.
Also if you want to get a question answered by the tutor himself, you should post on the ask the tutor forum, so he is sure to see it.
Take care.
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