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For this, I remember the method but can’t remember the situation in which I use it – when do we do the following
Calculate how many shares we could buy with the proceeds – ie if 10 shares are issued at £2 each (but MV is £4), we say that we could have bought 5 and so there are 5 bonus shares – is it correct to say this and what kind of question would ask this – what would we call the initial issue of shares?
Thank you! I assume this is more likely to be a section A/B section, or if a section C question included EPS/Diluted EPS?
Hi,
Yes, that is correct. If we buy 10 shares at £2 each then we have spent £20. Using this £20 we could have bought 5 (20/4), so in effect we have 5 free shares. This is then used in relation to calculating the diluted EPS. And yes, it is more likely to be seen in A/B but there’s nothing about anywhere to say that it cannot be in C.
Thanks
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