In this workout, we're being asked to use the given assumptions and calculate the EPS impact of Nanotech from the IPO of its investment in X Tech. So if we scroll down, this is the main table that we're going to fill in. What we're going to do is we're going to work out Nanotech net income, but then we're going to make some adjustments to it. Okay so we're going to subtract out some things, add on some things that will have happened because of the IPO. So let's start off with Nanotech group EPS. We've got that up here. And here's their earnings per share. And you might notice just above it is their shares outstanding. That's the next line item that we need. So their average number of shares, so back up to row 25.

Got it. So their net income forecast is those two figures multiplied together.

Now I need to put in X techs net income. Now if we again, have a look at what we've got, net income, so we take 30.1, but because of the IPO, not all of that net income is going to be going to Nanotech, going to the group. So we need to have some of it go somewhere else to NCI, your non-controlling interest. They're going to be receiving those earnings. So we need to subtract off the amount that goes to them. Now, how much is being sold? It's 20% of the ownership. So 20% of the earnings is going to go out as well. And I'm going to times this by minus 1 to show that those earnings drop. However, we now have proceeds coming into the business, those proceeds are going to be invested and going to make some money. We've been given a return for those of 5% after tax return and cash at 5%. But the tricky thing for us is trying to work out what to multiply that 5% by. So we need to calculate the cash proceeds. That's why we've got this empty template just above.

What we're going to do is we're gonna work out the book value of equity sold. Then we're going to look at our proceeds and the difference between the book value and the proceeds will represent a gain and going to take earn again, fantastic, good for us. But on gains, you need to pay tax. So we will have to work out the proceeds. Great. Subtract off the tax and the net of them. The net of the proceeds minus the tax, that will earn 5%. So let's go do that. So the book value of equity, They had common stock of 10 and additional paid in capital of 50. So giving them 60. Now, what was the percentage sold? That was the 20%. So the book value of the equity sold, they sold something worth 12 or at least a book value of 12.

But how much was it sold for? It was sold for proceeds of 100. Wow. So we need to put those proceeds of 100 in here And now work out the difference. That's the gain that Nanotech has earned. 88. On that gain, we'll have to pay tax. The tax rate was given to us at 30%, so 30% on that gain, 26.4. So what's my proceeds? 100. but after tax subtracts off to 26.4, and we finally get to the proceeds after tax. The only thing we need to do now is work out the return on that. We know that return was going to be 5%.

So now 5% on the 73.6 is 3.7, and that's the number we were after. So quite a lot of work to get to that, but really super useful. If you're looking at an IPO proceeds coming in, what is the company going to do with those proceeds? In this case, they're going to earn 5% return on it. So net income goes up 3.7. So now I can work out the group post deal net income. We've got Nanotech net income here, but we don't need to add on X techs. Net income. X techs Net income is already consolidated within the Nanotech net income. So that's okay. We don't need to add it in, but I do need to subtract out any leakage from that. And that was the 6. But also we had the return from the after tax return on cash proceeds getting us to a figure of 248.3.

What's left to do now is to divide that by the post deal number of shares. That's further up, shares outstanding for NEC was 100.

And now I can work out post deal EPS of 2.5. Now, all of these figures are in the actual year. I'd love to find out what's happening in the year 1 and 2 forward. I'm going to have to lock a couple of these cells in order to do that. If I go down to the NCI earnings, I'm going to have to lock onto that C 45 just to show you what that is. That's the 20%. I don't that scroll into the right and the after tax return.

Remember, that's the 3.7 and that'll stay the same. Great. Let's copy those to the right.

And now let's work out EPS Accretion of dilution. So I take that new figure developed by the old EPS 2.56, subtract off one and copy that to the right. And unfortunately this deal has been dilutive. But a quick reminder though, what were the big things that changed? Well, we know that we need the group's net income beforehand, but we then need to subtract out any NCI earnings that are now leaking out to the new shareholders. But we get to add in the after tax return on cash proceeds as well.