Question Tag: Equity Financing

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  • 6 Marks

AFM – May 2016 – L3 – Q4d – Sources of finance and cost of capital

Calculate the theoretical ex-right price, value of rights, and analyze the effects of a rights issue on a shareholder's wealth.

d) Agoro Limited has issued 75,000 equity shares of GH¢0.10 each. The current market price per share is GH¢24. The Company has decided to make a rights issue of one (1) new equity share at a price of GH¢16 for every four (4) shares held.

Required:
i) Calculate the theoretical ex-right price per share.

(2 marks)
ii) Calculate the theoretical value of the right. (1 mark)
iii) Mr. Crentsil currently holds 1,000 shares in Agoro Limited, show the effect of the rights issue on his wealth assuming he sells the entire right. (2 marks)
iv) Calculate the effect if Mr. Crentsil does not take any action and ignores the right issue. (1 mark)

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  • 6 Marks

AFM – May 2016 – L3 – Q4d – Sources of finance and cost of capital

Calculate the theoretical ex-right price, value of rights, and analyze the effects of a rights issue on a shareholder's wealth.

d) Agoro Limited has issued 75,000 equity shares of GH¢0.10 each. The current market price per share is GH¢24. The Company has decided to make a rights issue of one (1) new equity share at a price of GH¢16 for every four (4) shares held.

Required:
i) Calculate the theoretical ex-right price per share.

(2 marks)
ii) Calculate the theoretical value of the right. (1 mark)
iii) Mr. Crentsil currently holds 1,000 shares in Agoro Limited, show the effect of the rights issue on his wealth assuming he sells the entire right. (2 marks)
iv) Calculate the effect if Mr. Crentsil does not take any action and ignores the right issue. (1 mark)

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  • 5 Marks

AFM – May 2018 – L3 – Q1c – Theories of capital structure

Calculating the WACC for different financing options and determining the optimal capital structure.

Paisley Brothers Ltd, a company producing loud paisley shirts, has a net operating income of GH¢20,000 and is faced with the following three options for how to structure its debt and equity:

i) Take no debt and pay shareholders a return of 9%.
ii) Borrow GH¢50,000 at 3% and pay shareholders an increased return of 10%.
iii) Borrow GH¢90,000 at 6% and pay a 13% return to shareholders.

Assuming no taxation and a 100% payout ratio:

Required:
Calculate the Weighted Average Cost of Capital (WACC) for each of the options and determine which method is optimal. (5 marks)

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  • 5 Marks

AFM – May 2018 – L3 – Q1c – Theories of capital structure

Calculating the WACC for different financing options and determining the optimal capital structure.

Paisley Brothers Ltd, a company producing loud paisley shirts, has a net operating income of GH¢20,000 and is faced with the following three options for how to structure its debt and equity:

i) Take no debt and pay shareholders a return of 9%.
ii) Borrow GH¢50,000 at 3% and pay shareholders an increased return of 10%.
iii) Borrow GH¢90,000 at 6% and pay a 13% return to shareholders.

Assuming no taxation and a 100% payout ratio:

Required:
Calculate the Weighted Average Cost of Capital (WACC) for each of the options and determine which method is optimal. (5 marks)

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  • 5 Marks

FM – April 2022 – L2 – Q4c – Sources of finance: equity

Explain the concept of pre-emptive rights and rights issues, and discuss the advantages to a company for using a rights issue to raise additional capital.

Existing shareholders have some advantages available to them that potential shareholders interested in buying shares from the company do not have. Some of those advantages are pre-emptive rights and rights issues.

Required:
i) Explain the term Pre-emptive rights. (2 marks)
ii) Explain the concept of a Rights issue and explain ONE (1) advantage to a company for using rights issues to raise additional capital. (3 marks)

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  • 5 Marks

FM – April 2022 – L2 – Q4c – Sources of finance: equity

Explain the concept of pre-emptive rights and rights issues, and discuss the advantages to a company for using a rights issue to raise additional capital.

Existing shareholders have some advantages available to them that potential shareholders interested in buying shares from the company do not have. Some of those advantages are pre-emptive rights and rights issues.

Required:
i) Explain the term Pre-emptive rights. (2 marks)
ii) Explain the concept of a Rights issue and explain ONE (1) advantage to a company for using rights issues to raise additional capital. (3 marks)

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  • 6 Marks

AFM – May 2016 – L3 – Q4d – Sources of finance and cost of capital

Calculate the theoretical ex-right price, value of rights, and analyze the effects of a rights issue on a shareholder's wealth.

d) Agoro Limited has issued 75,000 equity shares of GH¢0.10 each. The current market price per share is GH¢24. The Company has decided to make a rights issue of one (1) new equity share at a price of GH¢16 for every four (4) shares held.

Required:
i) Calculate the theoretical ex-right price per share.

(2 marks)
ii) Calculate the theoretical value of the right. (1 mark)
iii) Mr. Crentsil currently holds 1,000 shares in Agoro Limited, show the effect of the rights issue on his wealth assuming he sells the entire right. (2 marks)
iv) Calculate the effect if Mr. Crentsil does not take any action and ignores the right issue. (1 mark)

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  • 6 Marks

AFM – May 2016 – L3 – Q4d – Sources of finance and cost of capital

Calculate the theoretical ex-right price, value of rights, and analyze the effects of a rights issue on a shareholder's wealth.

d) Agoro Limited has issued 75,000 equity shares of GH¢0.10 each. The current market price per share is GH¢24. The Company has decided to make a rights issue of one (1) new equity share at a price of GH¢16 for every four (4) shares held.

Required:
i) Calculate the theoretical ex-right price per share.

(2 marks)
ii) Calculate the theoretical value of the right. (1 mark)
iii) Mr. Crentsil currently holds 1,000 shares in Agoro Limited, show the effect of the rights issue on his wealth assuming he sells the entire right. (2 marks)
iv) Calculate the effect if Mr. Crentsil does not take any action and ignores the right issue. (1 mark)

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  • 5 Marks

AFM – May 2018 – L3 – Q1c – Theories of capital structure

Calculating the WACC for different financing options and determining the optimal capital structure.

Paisley Brothers Ltd, a company producing loud paisley shirts, has a net operating income of GH¢20,000 and is faced with the following three options for how to structure its debt and equity:

i) Take no debt and pay shareholders a return of 9%.
ii) Borrow GH¢50,000 at 3% and pay shareholders an increased return of 10%.
iii) Borrow GH¢90,000 at 6% and pay a 13% return to shareholders.

Assuming no taxation and a 100% payout ratio:

Required:
Calculate the Weighted Average Cost of Capital (WACC) for each of the options and determine which method is optimal. (5 marks)

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  • 5 Marks

AFM – May 2018 – L3 – Q1c – Theories of capital structure

Calculating the WACC for different financing options and determining the optimal capital structure.

Paisley Brothers Ltd, a company producing loud paisley shirts, has a net operating income of GH¢20,000 and is faced with the following three options for how to structure its debt and equity:

i) Take no debt and pay shareholders a return of 9%.
ii) Borrow GH¢50,000 at 3% and pay shareholders an increased return of 10%.
iii) Borrow GH¢90,000 at 6% and pay a 13% return to shareholders.

Assuming no taxation and a 100% payout ratio:

Required:
Calculate the Weighted Average Cost of Capital (WACC) for each of the options and determine which method is optimal. (5 marks)

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  • 5 Marks

FM – April 2022 – L2 – Q4c – Sources of finance: equity

Explain the concept of pre-emptive rights and rights issues, and discuss the advantages to a company for using a rights issue to raise additional capital.

Existing shareholders have some advantages available to them that potential shareholders interested in buying shares from the company do not have. Some of those advantages are pre-emptive rights and rights issues.

Required:
i) Explain the term Pre-emptive rights. (2 marks)
ii) Explain the concept of a Rights issue and explain ONE (1) advantage to a company for using rights issues to raise additional capital. (3 marks)

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  • 5 Marks

FM – April 2022 – L2 – Q4c – Sources of finance: equity

Explain the concept of pre-emptive rights and rights issues, and discuss the advantages to a company for using a rights issue to raise additional capital.

Existing shareholders have some advantages available to them that potential shareholders interested in buying shares from the company do not have. Some of those advantages are pre-emptive rights and rights issues.

Required:
i) Explain the term Pre-emptive rights. (2 marks)
ii) Explain the concept of a Rights issue and explain ONE (1) advantage to a company for using rights issues to raise additional capital. (3 marks)

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