1) Sir in bar co question it is written that right issue will be at 20% discount to its current ex dividend share price of $7.5 per share and bar co plans to raise $90m. Existing ordinary shares nominal value was $1 per share.
Here the nominal value of right issue per share will be $1 or $6 (i.e 7.5*0.8)?
2) In part b examiner did :
Nominal value of bonds redeemed = 90m x (100/112·50) = $80 million
Interest saved by redeeming bonds = 80m x 0·08 = $6·4 million per year
Revised profit before tax = 49m – (10m – 6·4m) = $45·4 million
Revised profit after tax (earnings) = 45·4m x 0·7 = $31·78 million
If instead of this we calculate Revised PAT in another way i.e
Nominal value of bonds redeemed = 90m x (100/112·50) = $80 million
Before tax Interest saved by redeeming bonds = 80m x 0·08 = $6·4 million per year
After tax interest saved by redeeming bonds = 6·4m x (1-0.3) = $4.48 million per year
Revised PAT = 27m + 4.48m = $31.48m
Would this be fine? But minor difference of $0.3m is coming in Revised PAT, I cannot figure out why this difference is coming, can you please help me?
Ask the Tutor ACCA FM
Bar co dec 2011
7y ago#11. The nominal value will be $1 - the rights issue shares always have the same nominal value of the existing shares. They are issued at a price of $6 each.
2. What you have done is fine and would get full marks. The difference occurs because on the SOPL given in the question, the tax has been rounded. It should be 11.7M, but has been round to 12M.
Sir in part c where question asked that calculate and discuss effect on financial risk of Bar co of using cash raised by right issue to buy back bonds, as measured by its interest coverage ratio and its book value debt to equity ratio. Here, we have taken 140m + 90m = 230m as revised book value of equity. So basically we have taken right issue at their issue price (i.e 15000000 x 6) while calculating revised book value of equity, should not we take them on their nominal value?
7y ago#3Share capital will increase by the nominal value, and share premium account will increase by the extra. So equity in total will increase by the full amount.
This is from Paper FA (was F3).
This topic is locked — no new replies.