Skip to content

CMA Intermediate · Financial Management and Business Data Analytics · Dividend Decisions and Dividend Theories

Meera Foods Ltd has 10,00,000 equity shares of Rs 10 each and free reserves of Rs 3 crore. Its shares trade at Rs 90 cum-bonus, and it announces a 1:4 bonus issue (1 bonus share for every 4 held). Assuming total market capitalisation is unchanged, Ravi holds 2,000 shares. What is the post-bonus theoretical price per share and the value of Ravi's holding?

The post-bonus price is Rs 72 and Ravi's holding is worth Rs 1,80,000. He gets 500 bonus shares, making 2,500 shares. Market capitalisation of Rs 9 crore spreads over 12.5 lakh shares to give Rs 72, and 2,500 times 72 equals his earlier 2,000 times 90.

  1. ARs 72; Rs 1,80,000Correct
  2. BRs 90; Rs 2,25,000
  3. CRs 72; Rs 1,44,000
  4. DRs 67.50; Rs 1,80,000

Explanation

Ravi receives 2,000/4 = 500 bonus shares, so he holds 2,500. Total shares = 10,00,000 x 1.25 = 12,50,000; market cap = 10,00,000 x 90 = Rs 9 crore, so price = 9,00,00,000/12,50,000 = Rs 72. Ravi's value = 2,500 x 72 = Rs 1,80,000, equal to the earlier 2,000 x 90, confirming no wealth change. Rs 1,44,000 ignores the bonus shares received.

Did you get it right without looking?

One question tells you little. A timed set on Dividend Decisions and Dividend Theories shows your real accuracy, how long you take and where you lose marks.

Practise Dividend Decisions and Dividend TheoriesFree diagnostic mock

More Dividend Decisions and Dividend Theories questions