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Chapter 5
(b) If the company is raising the funds for a project that will earn an NPV of
GBP 300,000, the value of the company will be increased now by the
value of the NPV.
As there are now 1.2 million shares in issue the increase in the share
price will be GBP 300,000/1.2 million = GBP 0.25 per share.
TERP = GBP 4.45 + GBP 0.25 = GBP 4.70 per share
Wealth of the shareholder:
Pre issue = 10,000 shares at GBP 4.50 each = GBP 45,000
Post issue: Investor received 2,000 shares paid for at GBP 4.20 each so
now has 12,000 shares:
Wealth = (12,000 shares × GBP 4.70) – (2,000 × GBP 4.20) = GBP
48,000
The extra wealth has come from 12,000 × GBP 0.25 per share
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