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Question 7.A.14: Assume that the market price per share in Wickham plc (see E...

Assume that the market price per share in Wickham plc (see Example 7.2) before the bonus issue was £2.10. What will be the market price per share following the share issue?

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The business has made a one-for-two issue. A holder of two shares would therefore be in the following position before the bonus issue:

2 shares held at £2.10 market price = £4.20

As the wealth of the shareholder has not increased as a result of the issue, the total value of the shareholding will remain the same. This means that, as the shareholder holds one more share following the issue, the market value per share will now be:

\frac{£4.20}{3} =\ £1.40

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