Skip to content

ACCA Strategic Professional · Advanced Financial Management · Business re-organisation

Brecon Ltd is being reconstructed. Its existing shareholders hold 10m shares currently valued at $0.50 each. Under the scheme they will give up their shares in exchange for 4m new shares in a reconstructed company, and debenture holders owed $6m will convert the debt into 12m new shares. No new cash is raised. If the total equity value of the reconstructed company is $9.6m, what is the value of the shareholders' holding after the scheme?

The reconstructed company has 16m shares, being 4m for existing shareholders and 12m for debenture holders. At equity value of $9.6m each share is worth $0.60. The existing shareholders' 4m shares are therefore worth $2.4m.

  1. A$2.4mCorrect
  2. B$4.8m
  3. C$3.0m
  4. D$1.2m

Explanation

Total new shares are 4m + 12m = 16m. Value per share is $9.6m / 16m = $0.60. Existing shareholders hold 4m shares, worth 4m x $0.60 = $2.4m. This is less than their current holding of $5.0m (10m x $0.50), so their value is diluted. $4.8m wrongly uses 8m shares.

Did you get it right without looking?

One question tells you little. A timed set on Business re-organisation shows your real accuracy, how long you take and where you lose marks.

Practise Business re-organisationFree diagnostic mock

More Business re-organisation questions