chapter 6: issue of shares lecture 3. where company gives free shares to all ordinary shareholders...
TRANSCRIPT
LEARNING AREA 2Chapter 6: Issue of shares Lecture
3
2. Scrip issues p24(“bonus / capitalisation” issues)
Where company gives free shares to all ordinary shareholders in proportion to their existing holding.
Impact: New shares No money raised Total value of the company do not change The price per share fall in proportion to the increase in
the number of shares Total holding per investor is unchanged Part of reserves (retained earnings) per BS changes to
share capital Read thoroughly through example p25!!
2. Scrip issues p26
Purpose of scrip issues Marketability – more lower priced shares Extra free shares… Interpreted as successful…sufficient profits Since scrip issue decreases share price
hence reduces possibility of future rights issue - directors must be confident about future prospects of company
Dividends – depends on dividends per share Higher share capital e.g. listing
requirements
2. Scrip issues p27
Disadvantages: Cost to the company
Administrative costs Cost to everyone else
Additional effort (costs) to calculate e.g. capital gains (need to eliminate the artificial effect of a script issue)
2. Scrip issues p28
Impact on the share price:n for m scrip issue reduces P (share price) to:
P’ = P * m/(m+n)Where m = number of shares held Where n = for every 3 shares held s/h receives 1
extra
Question 6.7Calculate the theoretical share price of a 1 for 3 scrip
issue, with a current share price of 250c. P’ = 250c * 3/(3+1)
= 187.5c
2. Scrip issues p29
Scrip dividend means that a company pays shareholders a dividend by giving them new shares rather than cash
There are two cases:- Everyone accepted the scrip dividend, or- Choice between scrip dividend and a
cash dividend: effect – scrip dividend worth as much as cash dividend
Homework
Example p25 Script issue – Impact
Question 6.8 p29 Reasons Ignore question 6.9 (only
applicable for to the second semester)
Semester test 2
Marks for Semester test 2 and class test 2 will be included in the semester mark on ClickUP
Please check your paper now!! And if you have any concerns please come and see me after class.
Important the semester marks needs to be finalised!!!!
EXAM Tuesday 10 June 2014 Will announce the time and venue on ClickUP Scope:All the work!!! Learning Areas 1 – 9Chapters 1; 2; 3 (UK notes plus RSA slides); 6; 7; 8; 9; 10; 11; 12 & 13 Total marks : 80 marks Duration: 2 hours (120 minutes) EXAM paper:Multiple choice questionsTheory questions (between 5 and 10 marks per question)Calculations
EXAM Please note that the exception
for FBS 112 is only applicable to the exam paper!
If you miss the exam and write the supplementary due to illness you will not get the exemption!!!!
60% exam mark is required for exemption