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Hi Chris,
Thank you for your lectures, thanks to opentuition for arranging these materials.
When we calculate basic EPS for rights issue, we calculate fraction for bonus issue using theoretical ex-issue price of shares.
However, when we calculate for options for diluted EPS, we calculate those “free” shares using market price.
Cannot comprehend the logic behind (we adjust market price in the first case, but do not in the second).
Thank you!
Hi,
Glad that you have found the materials useful.
With the diluted EPS and options, the shares we’ve paid for will increase the earning and so will not dilute the EPS figure. The ones that essentially we have received for free will dilute the EPS as the earnings will not increase but the number of shares in issue will. We therefore need to look at how many free shares we have received based on paying the full market value for the shares, i.e. without any option.
Thanks
Hi,
Maybe I was unclear in my ques. This is just to bring figures from the examples:
– in basic EPS example in order to calculate free part of shares, we calculated theoretical ex-rights price (which was lower then market price).
– in diluted EPS example in order to calculate free part of shares, we used market price.
Question: why do we take different prices for calculated the same free shares?
Thank you!
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