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Hi,
Below is the working from past paper june 2014 Xtol question. Could you please advice how he gets 160 million shares?
Dividends
The dividend paid on 30 May 2013 was $6·4 million (4 cents on 160 million shares ($40 million x 4, i.e. 25 cents
shares)) and the dividend paid on 30 November 2013 (after the rights issue) was $4·48 million (2 cents on 224 million
shares (56 million x 4)). Total dividends paid in the year were $10·88 million.thanks in advance
Here’s note (iii) from the question:
“(iii) On 1 August 2013, Xtol made a fully subscribed rights issue of equity share capital based on two new shares at 60 cents each for every five shares held. The market price of Xtol’s shares before the issue was $1·02 each. The issue has been fully recorded in the trial balance figures.”
That last sentence tells us that “The issue has been fully recorded in the trial balance figures” so the figure of $56 million worth of 25 cent shares is AFTER accounting for a 2 for 5 rights issue
If you finished up with a shareholding of 56 shares after a 2 for 5 rights issue, how many did you start with? What was your shareholding BEFORE that rights issue?
Is that enough for you? Come back to me if you’re still not sure
Great,
Thanks now it is clear to me.
Could you please also help with working 5 from the same question? I don’t understand it at all.
thanks in advance.
No, I’m not having that! Which bit do you not understand?
If you don’t get back to me within the next 5 minutes then my reply will not be until later this evening – I’m going out in 5 minutes’ time!
Number of shares outstanding (including the effect of the rights issue)
Theoretical ex-rights fair value:
Shares $ $
Holding (say) 100 1·02 102
Rights issue (2 for 5) 40 0·60 24 –––– –––– –––– 140 126 –––– –––– Theoretical ex-rights fair value 0·90 ($126/140)
––––
Weighted average number of shares:
1 April 2013 to 31 July 2013 160 million x $1·02/$0·90 x 4/12 = 60·4 million
1 August 2013 to 31 March 2014 224 million x 8/12 = 149·3 million
–––––––––––– Weighted average for year 209·7 million
––––––––––––here is the working.
i don’t understand the word say:) so they just conisder that amount? could you please help also with explanation of this working.
thnaks in advance
Ok – whenever I do this example I say to the students “Say you had 5 shares worth 1.02 each giving a value of 5.10
Then you buy 2 more that cost you 60 cents each, so you pay out another 1.20
And now you have 7 shares worth (5.10 + 1.20) 6.30
So each of your 7 shares is worth, in theory 6.30 / 7
So TERP is 90 cents and the rights fraction is
1.02 / .9
Is that better?
I’m going out again in 10 minutes!
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