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Hello – Please help me to understand why the bonus fraction is used.
I am working on question 71 of BPP Revision kit.
Issued share cap of Savoir at 31/3/2003 was $10m. Its shares are denominated at 25 cents each. Savoir’s Earnings attributable to its ordinary shareholders for the year ended 31/3/2003 were also $10m giving an EPS of 25 cents.
Y/E 31/3/2004
On 1/7/03 Savoir issued 8m ordinary shares at full market value. On 1/1/04 a bonus issue of one new ordinary share for every four ordinary shares held was made. Earnings attributable to ordinary shareholders for the y/e 31/3/04 were $13,800,000.When calculating the Weighted Average of Shares, the answer is using a Bonus fraction of 5/4. Why is this please??
Thank you
And why does the bonus issue (1/4) not use a bonus fraction when calculating the weighted average?
its easy to do this way.else you can do 40000000*1/4 =10000000, then add it to the original 40000000 = 50000000 now time apportion it, 50000000*3/12 = 12500000
thing with bonus is that they are treated as if they were issued in the begginning, so for every 4 shares they had now have 5 shares in total..
Hi, could you please interpret this bonus fraction
Proof of bonus fraction
By taking the bonus fraction as 1.1, we are stating that the rights issue is the equivalent of a 1 for 10 bonus issue plus a full price issue for the remainder of the shares.
Considering an individual who held 40 shares before the rights issue, this would mean taking a bonus of 4 shares and paying the full price for 6 (taking his year end holding upto 50 shares as would be the case following the 1 for 4 rights issue). We will show that the share price under this alternative is the same as we calculated above and hence the two are equivalent.
Hi, could you please interpret this bonus fraction
Proof of bonus fraction
By taking the bonus fraction as 1.1, we are stating that the rights issue is the equivalent of a 1 for 10 bonus issue plus a full price issue for the remainder of the shares.
Considering an individual who held 40 shares before the rights issue, this would mean taking a bonus of 4 shares and paying the full price for 6 (taking his year end holding upto 50 shares as would be the case following the 1 for 4 rights issue). We will show that the share price under this alternative is the same as we calculated above and hence the two are equivalent.
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