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Dear Mike, I cannot understand the workings for arriving at the weighted average number of shares (particularly the bonus fraction column) in this exercise:
FENTON
“Fenton had 5,000,000 ordinary shares in issue on 1 January 20X1.
On 31 January 20X1, the company made a rights issue of 1 for 4 at $1.75. The cum rights price was $2 per share.
On 30 June 20X1, the company made an issue at full market price of 125,000 shares.
Finally, on 30 November 20X1, the company made a 1 for 10 bonus issue.
Profit for the year was $2,900,000.
The reported EPS for year ended 31 December 20X0 was 46.4c.Required= EPS figure for year ended 31 Dec 20X1 and the restated EPS for year 20X0.
ANSWER (per text):
1.1.X1 b/d 5,000,000 x1/2 x2.00/1.95×11/10 470,085
31.1.X1 Rights issue 1,250,000
6,250,000 x5/12 x11/10 2,864,583
30.6.X1 FMP 125,000
6,375,000 x5/12 x11/10 2,921,875
30.11.X1 Bonus issue 637,500
7,012,500 x1/12 584,375
6,840,918TERP 4 @ 2 = 8.00
1 @ 1.75 = 1.75
5 9.75Therefore TERP = 1.95
EPS for y/e 31.12.X1 = $2,900,000/6,840,918 = 42.4c
Restated EPS for y/e 31.12.X0 = 46.4c x 1.95/2.00 x 10/11 = 41.1c——————————————————————————————————
I cannot see where the fraction 11/10 comes from at the WANS calculation but also fraction 10/11 (for sure they are related) when restating the EPS for previous year.Many Thanks,
AluaBonus fraction is calculated as “number of shares in issue AFTER the bonus / number of shares in issue BEFORE the bonus”
If there is a 1 for 10 bonus, then before the bonus you had 10 shares and after the bonus you had 11. Thus the bonus fraction is 11/10
For re-stating the last year eps figure, we multiply last year’s stated eps by the reciprocal f the bonus fraction and by the reciprocal of the rights fraction. (the reciprocal of a fraction is the same as the fraction itself but turned upside down. thus, the bonus fraction is 11/10 and the reciprocal is 10/11
OK?
hello Sir ,
i want to ask what is 2/1.95 why we multiply b/f no of shares with it and also (its reciprocal )when restating the EPS2/1.95 is the rights fraction. Have you read and followed the course notes in this area?
By multiplying the number of shares by the period of months expressed as a fraction by the bonus fraction and the rights fraction as applicable.
The figures in the “WANES” column are simply the product of the values in the three (or possibly, four) columns that precede the WANES column
OK?
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