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BPP Exam Kit Question 65 Fenton
Hi there,
Can someone please help in solving that question? I would like to know why did the examiner took 11/10 for the bonus fraction? I don’t have any clue….
Thanks a mill
its for bonus issue. 1 share for 10. 11/10 . i dont know why they did so. but by looking at other solution (saviour) what i deduced is, when in a question u have right or normal issue before bonus, for weighted average u do this bit. what I have just said would be more clear if u look at saviour question. there in part a) they issued normal shares first then bonus then right issue. 5/4 was done for normal shares as it was before bonus. In fenton both right issue and normal issue are before bonus so they did 11/10 for both of them.
hope it makes senses. again i dont know whats the logic.Check out the audio lectures from OT – it may give you a better explanation.
Or even just check the course notes – they tell you how to calculate a bonus fraction and then what you should do with the fraction after you’ve calculated it
@keymaster
I have no idea how this question is done, your lecture is helpful but I still can’t find a way to solve this question, can u please elaborate on that ’11/10′ thing? ThanksI have the same doubt too. Can anyone explain how to get the 11/10? the bonus fraction should be 2/1.95, no?
11/10 refers to the bonus issue, not the bonus fraction in rights issue. You have to treat them in different.
My personal way of calculating is different from what ACCA has laid out.
First, do the rights issue.
TERP = (1*1.75+4*2)/(1+4)=1.95
Bonus fraction = 2/1.95
At here, just leave the fraction at 2/1.95 because the decimal places will affect the answer later.WA No.of shares will be :
1/1/20X1-31/1/20X1 – 1/12 *5mil*2/1.95
=427350
1/2/20X1-31/12/20X1 – 11/12*5mil*5/4
=5729167
Total WA No of shares = 6156517For full market price, the treatment is also the same. Since question doesn’t ask to treat them SEPARATELY, so the WA of shares have to use what we got previously, ie 6156517.
WA No. of shares for FMP:
1/1/20X1-30/6/20X1 – 6/12*6156517
= 3078258.5
1/20X1-31/12/20X1 – 6/12*6156517
= 3140758.5
Right now the total WA No. of shares will be 6129017.For the bonus issue part, as I mentioned in the first, it should be treated as follows:
WA of shares = 6219017 *11/10 = 6840919
I’m aware of the answer is 6840918, I know it’s the difference of decimal places that affects it.So,
1.EPS 20×1 = $2.9mil/6840919 = 42.39c
2.EPS 20×0 = 46.4c *5mil /5mil*2/1.95*11/10 = 41.13c
Again my answers are in 2dcp, while the model answers are in 1dcp.@raxy @huiru23
The bonus issue 11/10 is actually quite simple.The questions says that the company made a 1 for 10 bonus issue. This means there will be 1 bonus share issued by the company for every 10 shares.
For instance, if I have 200 shares now, my bonus share will be 200 * 1/10 = 20 shares. In total, I will have 200+20= 220 shares, right?
So the other way of getting 220 shares will be 200*11/10 = 220 shares.
The concept goes the same in Fenton.
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