Question 3 [14 marks]

Tusker Corporation is considering a 3- for- 2 share split. It currently has the shareholder's equity position shown. The current share price is R120 per share. The most recent periods earnings available for ordinary shares are included in retained earnings. Preference shares R 1 000 000 Ordinary shares (100 000 shares at R3 per share R 300 000 Share premium R 1 700 000 Retained earnings R10 000 000 Total shareholders' equity R13 000 000

3.1What effects should the share effect have on Tusker?

3.2What change in share price would you expect to result from the share split?

3.3What is the maximum cash dividend per share that the firm could pay on ordinary shares before and after the share split? (Assume that legal capital includes all paid-in capital.)

3.4Contrast your answers to parts 1 to 3 with the circumstances surrounding a 50% share dividend.

3.5Explain the differences between share splits and dividends.