Use the following information for questions 1 to 3.
Rights Plc has an ordinary shares capital of $1,200,000 in $1 par shares, an
accumulated balance of $500,000 in the retained earning and a balance of
$500,000 in the share premium account as at 1st January 2017. The company
is also financed by a 5% non current liability loan of $500,000 and a issue of
redeemable 6% preference shares of $300,000 at $1.00 par.
On the 1st December 2017, the company undertook a 1 for 3 rights issue at a
price $3 per share. The operating profit was $800,000 for the year-ended 31
December 2017, of which 20% is expected to be paid out as equity dividends.
The company pays taxes at a rate of 20%.
Question 1 - 1 mark
Compute the gearing ratio (based on debt to equity) as at 1st January 2017.
a) 22.73%
b) 36.36%
c) 20.00%
d) 26.67%
Question 2 - 1 mark
Compute the cash proceeds as a result of the rights issue as at 1st December
2017.
a) $ 400,000
b) $ 800,000
c) $ 1,200,000
d) $ 300,000
Question 3 - 1 mark
Compute the earnings per share for the year ended 31 December 2017.
a) $0.38 per share
b) $0.48 per share
c) $0.20 per share
d) $0.50 per share
