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Hi,
In Selorne question, the current equity value is calculated as 50m of shares x $6.5 share price. Whilst Selorne has 50 milion $0.50 shares in issue, why don’t we divide 50 by 0.50 to get the number of 100m $1 shares which we would use to calculate equity value?
I am getting slightly confused, when by comparison to Kerrin question, to calculate number o shares we divide book value of 375m by $0.50 ordinary shares and arrive at 750m shares.
Please can you explain the difference.
Thank you
We need the actual number of shares in both cases (regardless of what the nominal value is).
In Selorne it says that the number of shares in 50 million, and so for the total MV we multiply the number of shares by the MV per share.
In Kerrin we are not given the number of shares. Instead we are told the total nominal (book) value of the shares and as you should remember from Paper FA (was F3), it is this that appears in the SOFP. Since the nominal value per share is $0.50, it must mean that there are 375/0.50 = 750 millions shares in issue.
(I don’t know where you are getting $1.00 per share from. Shares can have a nominal value of anything – it certainly does not have to be $1.00 !!)
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