QUESTION FIVE

A is a listed company. Your client, Mr B$,$ currently owns $300$ shares in A$.$ Mr B has recently received the published financial statements of A for the year ended $30$ September $20$X$8.$ Extracts from these published financial statements, and other relevant information, are given below. $MrB$ is confused by the statements. He is

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unsure how the performance of the company during the year will affect the market value of his shares, but is aware that the published earnings per share $($EPS$)$ is a statistic which is often used by analysts in assessing the performance of listed companies.

Statements of profit or loss $-$ year ended $30$ September

Equity:

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Share capital

Share premium account

Retained earnings

Information regarding share capital:

The issued share capital of the company comprises $$1$ equity shares only. On $1$ April $20$X$8,$ the company made a rights issue to existing shareholders of two new shares for every one share held, at a price of $$3\mathrm{.}30$ per share, paying issue costs of $$100,000.$ The market price of the shares immediately before the rights issue was $$3\mathrm{.}50$ per share. No changes took place in the equity capital of $A$ in the year ended $30$ September $20$X$7.$

Required:

$($a$)$ Compute the EPS figures $($current year plus comparative$)$ that will be included in the published financial statements of A for the year ended $30$ September $20$X$8.$

$(6$ marks$)$

$($b$)$ Using the extracts with which you have been provided, write a short report to Mr B which identifies the key factors which have led to the change in the EPS of A since the year ended $30$ September $20$X$7.(13$ marks$).$

$($c$)$ Comment on the relevance of the EPS statistic to a shareholder like $MrB$ who is concerned about the market value of his shares. $(6$ marks$)$

NB: Marks are available for professionalism and professional acumen

$[$Total: $25$ marks$]$

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