How is the rights issue bonus fraction calculated?

The calculation of the rights issue bonus fraction is correctly identified as taking the share price before the issue and dividing it by the theoretical ex-rights price. This method reflects how the rights issue affects existing shareholders' equity and the value of shares they hold.

In a rights issue, existing shareholders are typically allowed to purchase additional shares at a discounted price relative to the market price. The theoretical ex-rights price represents the new "average" price of the shares after the rights issue has taken place, reflecting the dilution of value but also the increase in the number of shares in circulation.

By taking the share price before the issue and dividing it by the theoretical ex-rights price, one can see how much value the new shares bring to existing shareholders. This fraction indicates how many new shares they can afford to buy per share currently held, thereby helping them maintain their proportional ownership in the company.

Understanding this calculation is crucial for financial analysts and shareholders alike since it directly impacts investment decisions and the perception of share value post-issue.