Share Allotment Calculation
This problem involves calculating the number of shares a specific applicant (A) applied for, given a scenario of pro-rata share allotment.
Pro-Rata Allotment Analysis
The company invited applications for 2,000 shares. Applications were received for 3,000 shares. However, a pro-rata allotment was specifically made only on applications totaling 2,400 shares. This implies that applications for 600 shares (3,000 - 2,400) were either rejected or treated differently. The pro-rata ratio applies to the group of applicants who applied for 2,400 shares.
Calculating Shares Applied For
Step 1: Determine the Pro-Rata Ratio
The pro-rata ratio is the proportion of shares allotted relative to the shares applied for within the group considered for pro-rata allotment.
- Total shares allotted (intended issue size): 2,000 shares
- Total shares applied for (in the pro-rata group): 2,400 shares
The pro-rata factor is calculated as:
$ \text{Pro-rata Factor} = \frac{\text{Total Shares Allotted}}{\text{Total Shares Applied for (Pro-rata Group)}} $
$ \text{Pro-rata Factor} = \frac{2000}{2400} = \frac{20}{24} = \frac{5}{6} $
This ratio means that for every 6 shares applied for by an applicant in this group, 5 shares were allotted.
Step 2: Calculate Shares Applied by Applicant A
Let the number of shares applied for by A be '$x$'. We know A was allotted 40 shares.
Using the pro-rata factor:
$ \frac{\text{Shares Allotted to A}}{\text{Shares Applied for by A}} = \text{Pro-rata Factor} $
$ \frac{40}{x} = \frac{5}{6} $
Step 3: Solve for x
Cross-multiply to solve for '$x$':
$ 5 \times x = 40 \times 6 $
$ 5x = 240 $
$ x = \frac{240}{5} $
$ x = 48 $
Therefore, applicant A must have applied for 48 shares.
Important Questions from Shares
Which of the following distinction(s) is/are not correct between public issue and rights issue?
(A) In public issue, applications for shares are invited from the general public and in rights issue, the shares are offered to existing shareholders.
(B) In public issue there is no question of any over-subscription and in rights issue the shares may be under subscribed or over subscribed leading to prorata allotment.
(C) The price of public issue is generally less than the market price and in rights issue, the price is deliberately made less than the market price.
(D) In a public issue, the communication of the issue is through prospectus or advertisements and in a rights issue the communication is between the company and the existing members of the company.
Choose the most appropriate answer from the options given below:
Match List I with List II:
List I List II (A) Bonus shares (I) Invitation to existing shareholders to purchase additional new shares (B) Demat shares (II) Issue is made to existing members free of charge (C) Right issue (III) Share issues by a company to its employees/directors at a discount for providing know-how (D) Sweat equity share (IV) Shares in electronic form Choose the correct answer from the options given below:
Identify the correct sequence of activities involved in the process of buy back of shares.
A. Letter of offer to the shareholders.
B. Opening of bank account.
C. Approval for Extra-ordinary General Meeting.
D. Convening board meeting.
E. Declaration of Solvency.
Choose the correct answer from the options given below:
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
Which of the following order is followed in the issue of shares under the "Fixed Price Offer Method"?
A. Issue of a prospectus
B. Receipt by the company of application for share
C. Selection of merchant banker
D. Issue of share certificates
E. Allotment of shares to the applicant
Choose the correct answer from the options given below
