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Hello Sir,
After calculation of the Theoretical Ex-rights (entitlement) price ,
What is the Adjustment Factor formula ? and when it is used ?
ThanksExample 1 Svetlana, chapter 21, F7 course notes page 120 shows you and the two rules to be applied are set out immediately before:
1) multiply all prior periods this year by the RIGHTS FRACTION, and
2) multiply last year’s disclosed EPS by the reciprocal of the rights fraction.
It really couldn’t be clearer
Ok for the 2 rules .
But is there a relation between the 2 rules and both diluted shares and diluted EPS ?
Thanks
Not really
The dilutions elements come in after you have calculated the basic eps and to have calculated basic eps you will have used the bonus fraction and the rights fraction
Dilution issues involve options and convertible instruments
Ok, for calculating the Diluted Shares number in order to add them to the outstanding ones,
can we use the fall percentage at the share rate after the new issues, then multiply
that percentage by the rights (or options) number to reach the diluted shares number ?
Thanks
I don’t understand this:
‘can we use the fall percentage at the share rate after the new issues, then multiply’
What’s the ‘fall percentage’
What’s the ‘share rate’
And ‘then multiply’ what?
Furthermore, I don’t understand this:
‘that percentage by the rights (or options) number to reach the diluted shares number ?’
What’s ‘the rights (or options) number’
The chapter on pages 119 to 126 is complete in itself and should require little further explanation
You mention ‘the rights (or options) number’
A rights issue and the free shares in an options dilution are totally separate matters and can only be combined in the way you have combined them in extremely unusual circumstances
May I ask you to think again about the wording of your query and re-post it.
If I can understand it (and therefore if I can understand your confusion) then I shall answer it but until then I feel about as confused as you appear to be!
Ok .
the share rate : is the share price .
fall percentage % : it happens when the the exercise price, becomes lower than the mid-market price, by some percentage
so the formula will be ? :
Dilutes shares number = the fall percentage % × the new options numberis that right ?
Oh! I’ve never thought of doing it hat way. In fact, it seems to me to be rather more difficult that doing the simple way that I have shown in the course notes
Tell you what – give me some numbers by way of an hypothetical example and I’ll work them out ‘my way’ and you work them out ‘your way’ and then we’ll compare
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