Question 2 A company had 6,000,000 ordinary shares on issue at the beginning of Year 1. At the end of the third quarter of Year 2 it announced a rights issue whereby all existing shareholders were entitled to buy one share for every four they held, at a price of MU30. Immediately prior to the rights issue, the share price was MU50. In calculating basic earnings per share the shares before the rights issue must be adjusted by a factor, which of the following is the correct factor? The fair value per share before the rights issue (the fair value of the existing shares the number of shares outstanding after the rights issue) i.e., MU50+ [(6,000,000 x MU50) + 7,500,000] The fair value per share before the rights issue occurred (the cash received from the rights issue the number of shares outstanding after the rights issue) i.e., MU50 [(1,500,000 x MU30) 7,500,000] The fair value of the existing shares + the cash received from the rights issue the number of shares outstanding after the rights issue i.e., [(6,000,000 X MU50) + (1,500,000 x MU30)] = 7,500,000 Fair value per share before rights issue = [(fair value of existing shares + cash from rights issue) number of shares after rights issue] i.e., MU50 {[(6,000,000 X MU50) + (1,500,000 MU30)] 7,500,000}