Mock exam question

Before the rights issue there were 800 million shares in issue ($400 million worth)

After the 1 for 4 rights issue, there were 1,000 million shares in issue ($500 million worth)

800 million * 4 cents = $32 million and
1,000 million * 2.5 cents = $25 million

So total dividend is $57 million

Is that right?

It’s $57 millithe on because Destiny, in the opening post, has told us that the share nominal value is 50 cents

Here’s an extract from the internet about the question Promulgate:

‘Promulgate’s trial balance as at 31 December 2015 showed credit amounts of £500,000,000 and $80,000,000 against the $1 equity shares and the share premium account respectively’

And that’s why my answer is double the apparent printed solution … because (following Destiny’s misleading post) I have calculated the number of shares to be double the actual number

Destiny, you ask ‘Sorry can you please tell me how do you come to $400 million figure?’

The question tells us that the value of share capital AFTER the rights issue is $500 million and that the rights issue was on the basis of 1 for 4

Therefore, there must have been $400 million worth of shares BEFORE the rights issue.

Then a 1 for 4 would involve the issue of a further $400 * 1/4 value of shares and so, AFTER the rights issue there would now be $500 million