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Chapter 14

Example 3

Rights issue

Robert had 6,000 ordinary shares in issue on 1 January 20X3.

On 1 April 20X3 Robert issued 1,500 shares in a 1 for 4 rights issue at a price
of $2.50 when the market price per share was $4.

Robert’s earnings for the year to 31 December 20X3 were $1,200.

Required:

Calculate Robert’s earnings per share for the year to 31 December 20X3.

TERP calculation No of Price per Total value
shares share $ $

Holding 4 4.00 16.00
Rights 1 2.50 2.50

–—– –—–—
5 18.50

–—– –—–—
TERP = 18.50 ÷ 5 = $3.70

No of shares Fraction of Rights issue Weighted
year held bonus average
fraction
b/f 6,000 × 3 / 12 4 / 3.70 1,622

Rights issue 1:4 1,500
———

Total 7,500 × 9 / 12 5,625
——— ———

7,247
—–—

Earnings per share = 1,200 ÷ 7,247= 16.6¢

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