[mosaddeque]

Thank you very much 🙂

[mosaddeque]

Mr. John Moffat

Would you kindly give any opinoin about my answer? I am eagerly seeking for your comments….. sir

[mosaddeque]

yeah…….. with some mistakes for sure……. 😀

[mosaddeque]

yes……. i am also thinking so now..

[mosaddeque]

Dear Mr. John Moffat
I have also tried to solve in a different way. Before rights issue no. of shares were 20 million…. which increased to 24million. (1 for 5 rights issue.)P/E ratio before rights issue were 8.33 (current market value of $3.5 per share / EPS of $0.42 per share). After rights issue I asuumed the total earnings will remain unchanged i.e.$ 8400,000.(as this is the current earnings and we are determining the immediate effect). So the revised EPS is $0.35 per share ($8400,000/24 million). As the market price of the share is EPS * P/E ratio and the P/E ratio is unchanged so revised market price is $2.96 per share(0.35 * 8.33). Comparing this with the theoretical ex- rights price of $3.38 per share ((5 * 3.5 + 1 * 2.8)/6) this is a net capital loss of $0.42 per share (3.38 – 2.96) .

Dear Sir…..
what do you think about my answer 🙂

[mosaddeque]

yes…. this was in the exam and i am uncertain about this too.

[Author]

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