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meta ltd has the following capital structue:
$000
50c ordinary shares 4000
retained earnings 5000
= 9000
the company has a return on ordinary shareholders funds of 10% and this level of return is expected to continue after a forthcoming 1 for 4 rights issue at $1.20 per share.what will be the earnings per share (in cents) following the rights issue
ans is: 11.4
how to do the working ? thanks.
Right Issues = 8000 000 x 1/4 = 2000 000 units
2000 000 x $1.2 = $ 2,400,000
Total Shares (after right issues) = 8000 000 + 2000 000 = 10,000,000 unitsNew Shareholders’ Equity = $9,000,000 + $2,400,000 = $11,400,000
10% (ROSF) = Profit after Tax , PAT/ Shareholders’ Equity ) X100%
10 % = (PAT / Shareholders’ Equity) X 100 %
10 % = (PAT / $ 9,000,000) X100 %
PAT = $ 900,000 (Before right issues)After right issues, ROSF = (PAT / Shareholders’ Equity) x 100%
(remain same) 10 % = (PAT/$ 11,400,000) x 100%
PAT = $ 1,140,000EPS = Profit / Number of Share
= $1,140,000/ 10,000,000 units
= $0.114 or 11.4 centsCan you understand my explaination?
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