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Dear sir,
Please help to show the workings for the question from the MCQ bank. Is the corporation income tax rate irrelevant?
Thank you.
N
Q: Alfrida has correctly calculated EPS for the current year ended 30th Sep but is confused about how to restate last year’s disclosed EPS. On 31st March 2014, there had been a 2 for 5 rights issue with an exercise price of $1.25. Mid-market price immediately before the issue had been $3.00 and the corporate income tax rate applicable was 20%. By what fraction should last year’s disclosed EPS be multiplied?
A: 5/65 @ 3 = 15
2 @ 1.25 = 2.5So 7 are worth 17.5 and that’s equal to 2.50 each
The rights fraction is 3 / 2.5 and that cancels down to 6 / 5
The reciprocal is 5 / 6 and that’s the fraction that we apply to last year’s disclosed eps
Ok?
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