- 20 Marks
Question
a. The Securities and Exchange Commission and the National Insurance Commission are part of a list of regulators established by an Act of Parliament. They play a very critical role in the regulation of the financial services sector in the country.
Required:
i) Explain THREE (3) main functions played by the Securities and Exchange Commission in Ghana. (6 marks)
ii) Explain TWO (2) functions performed by the National Insurance Commission in Ghana. (4 marks)
b) LIGRI Bank Ghana Ltd generates a profit after tax of 15% on shareholders’ funds. The current capital structure of the bank is as follows:
| Item | GH¢ |
|---|---|
| Ordinary shares | 40,000,000 |
| Reserves | 80,000,000 |
| Total | 120,000,000 |
The management, with the board’s approval, wishes to raise GH¢50,000,000 from a rights issue to expand their existing operations in the country. The return on shareholders’ funds will not change. The current ex-dividend market price is GH¢4 per share. The right issue price proposed by the Finance Director is GH¢3.8 per share.
Required:
i) Calculate the total number of shares to be issued by the company. (3 marks)
ii) Determine the theoretical ex-right price per share after the issue. (3 marks)
iii) Calculate the new earnings per share after the rights issue. (3 marks)
iv) Comment on the calculations of the theoretical ex-right price calculated in ii) above. (1 mark)
Answer
a)
i) The Securities and Exchange Commission performs the following functions:
- Guidance to companies and the general public on the interpretation of the provisions of securities law, rules, and regulations on listing.
- Licensing of market operators such as dealers, brokers, advisors, assets, and fund managers.
- Overseeing the regulation of the fund management industry in Ghana.
ii) The following are the functions performed by the National Insurance Commission:
- Licensing of entities in the insurance industry such as insurance companies and brokers.
- Setting up standards and facilitating the establishment of codes for practitioners.
b)
i) Number of shares to be issued:
No. of new shares = GH¢50,000,000 / GH¢3.8 = 13,157,894 shares
ii) Theoretical ex-right price per share = (GH¢90,000,000 / 23,157,894 shares) = GH¢3.886 per share
iii) New earnings per share = GH¢25,500,000 / 23,157,894 shares = GH¢1.1 per share
iv) It is expected that since the return on shareholder funds has not changed, the theoretical ex-right price will be below the current price. It is expected to be issued at a discount.
- Topic: Economic and regulatory environment, Sources of finance: equity
- Series: NOV 2021
- Uploader: Joseph