Bonus share issue: Mildura Chem Co. shares are currently trading for $54. Assume there is no new information about the company. If the company does a 10 per cent bonus share issue, what will the approximate price of the share be after the issued?

Question

Quizplus · Accepted Answer

A bonus share issue means that the company issues new shares to its current shareholders for free. In this case, since the bonus share issue is 10%, for every 10 shares a shareholder owns, they will receive an additional share for free.

This means that the number of outstanding shares of Mildura Chem Co. will increase by 10%. If we assume that the value of the company remains unchanged, the total value of the company will now be spread over a larger number of shares, which means each share will have a lower value than before.

To calculate the new share price, we can simply divide the current share price by 1.1 (to account for the bonus shares).

$54 / 1.1 = $49.09

Therefore, the approximate price of the share after the bonus share issue will be $49.09 per share (option C).

Bonus Share Issue: Mildura Chem Co