Question Tag: Capital raising

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  • 10 Marks

AFM – May 2018 – L3 – Q1b – Sources of finance and cost of capital

Calculating the share price at which public and rights issues should be made and the share price expected after the rights issue.

Mbo Ltd needs to raise GH¢500,000 to finance a large-scale project which would produce earnings of GH¢90,000 in perpetuity but is undecided as to the manner in which the money should be raised.

The company has an issued capital of 2 million equity shares of GH¢1 each with a current market price of GH¢1.38 cum div. The annual dividend (which has been constant for many years) of GH¢360,000 is about to be paid.

Two methods of raising capital are being considered, a public issue, and a right issue at GH¢1.

Required:
i) Calculate the price at which the public issue should be made. (5 marks)
ii) Calculate the price at which you would expect shares to be valued immediately after the rights issue. (5 marks)

  • 6 Marks

BCL – Nov 2018 – L1 – Q7b – Types of Capital and the Financing of Companies

Types of Capital and the Financing of Companies

State THREE (3) options that a company limited by shares has in raising capital to finance its operational activities. (6 marks)

  • Additional Capital from Shareholders: The company can raise additional capital by asking existing shareholders to invest more funds in exchange for additional shares.
  • Loan Capital from Banks/Financing Houses: The company can obtain loans from banks or other financial institutions, which would need to be repaid with interest.
  • Funds from Friends/Private Investors: The company can raise capital by seeking investments from friends, private investors, or venture capitalists who are willing to invest in the company’s growth.
  • Investment from Venture Capital: Seeking venture capital funding is another way to raise funds, typically in exchange for equity in the company.
  • Invitation to the Public: The company can invite the public to invest by offering shares or securities for sale, often through a public offering.
  • Rights Issue: The company can raise capital by offering existing shareholders the opportunity to purchase additional shares at a discounted price before offering them to the public. (3 points @ 2 marks each = 6 marks)
  • 10 Marks

FM – Nov 2017 – L2 – Q2b – Sources of finance: debt

Discuss the problems small firms encounter in raising capital in the Ghanaian financial markets.

Many small firms encounter a lot of problems in obtaining funds from the entire financial market to run their businesses. This problem has always accounted for their low performance in business.

Required:
What problems do small firms encounter in their efforts to raise capital in the Ghanaian financial markets? (10 marks)

Small firms encounter the following problems in their efforts to raise capital in the Ghanaian financial market:

  • The high cost of obtaining a quotation on the stock market. For most small firms, a quotation has become impracticable.
  • Large firms are better known and provide more financial information than smaller firms.
  • The accounting system in large firms is more sophisticated and is able to provide a greater quantity of more reliable information which can be incorporated into annual reports or profit forecasts.
  • Investments in larger companies are more easily marketable.
  • The smaller business will find it particularly difficult to attract venture capital.
  • Small firms tend to lack the financial expertise to prepare adequate cash flow projections or proper forecasts.
  • The cost of finance to small firms will probably be higher than that for large businesses. In order to attract capital in the first place, the small firm may be forced to pay a greater rate of interest.
  • Some government-supported schemes (e.g., agricultural loan guarantee scheme) specify minimum qualifying levels which exclude the smaller firms.

(Any 5 points for 10 marks)

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