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This is modified question by BPP of Dec04. They ask for effect of right issue finance used for redemption of $4500 loan notes, on equity gearing and interest cover.
Current info:
ordinary share ( $0.50 par ) $2000
Reserves $1500loan notes (12%) $4500New:
Right issues 1 for 5 = 800 rights i.e, 4000 ordinary shares/5
Right issues value $3.4 @ 800 = $2720 – $220(costs) = $2500
$2500 used for redemption = $2000 loan notesPBIT $2128
Interests $328
Profit after interest $1800
Tax30% $540
Profit a/ int & tax $1260I dont want you to do interest cover however, it is done by me on right path.
BUT
Debt/Equity ration seems to be interferring at new value:
$2000/$6000**from where this figure arrives, I guess = $3500 previous equity + 800 rights @ $3.4. Even then this figure is not pursued 🙁
Kindly help me at this point.
Many Thanks
The company is raising $2,500 additional equity finance. This will increase share capital and reserves.
Currently the equity on the Statement of financial position is 3,500. With an extra 2,500 raised from equity it will increase to 6,000.
Hello Colleague!!!!!!!!
There is a lack information. What is the CMV of existing shares? It is this value x 4000 shares + 2500 amount raised from right issue. You must add the value of the existing 4000 shares plus right issue value /4000+800 = TERP x 4800.
The 3500 is saying that it include the rev of 1500 (2000 + 1500); I will tell you that there could be an error. RIP is 3.4 therefore CVM is more!!!!!!
It is simple asking you to calculate the current D/E after the redemption of loan – 2500. 2000 @ 12% is the interest and thus there is BK OD. there is a missing piece of critical data – MV B4 RICardine: Please do not answer questions in this forum – it is the Ask the Tutor Forum and you are not the tutor 🙂
Please restrict yourself to answering in the general F9 forum.What you have written is not correct – there is no lack of information in the question Tirwen. It is a past exam question and the examiner wanted the debt/equity ratio based on Statement of financial position (Balance Sheet) values, not on market values.
Mr Tutor, I assumed that it was the book value of D/E base on the information that is there. I have a BPP FM book latest version and I do not find that question in it. So I presumed that there was lack of information as it is.
It was not my intention to misguide anyone and thus as I saw the question – pops out at me; I tried to help not recognizing that it was your forum. The information is limited to me and, if I don’t have it, and comment on what I see – normal for any being, whether human or animals.
I am a human being who want everyone to rise to the sky if they so desire; thus any information I have – it is shared. Your territory – Sir, and there is freedom of speech. We MUST take care in everything we do.
Regards,
Thank you Cardine.
It is not a problem, but just please leave questions in the Ask the Tutor Forum for me to answer 🙂
Dear John,
just a quick question. The answer to this question says:
current EPS = share price QPE ratio = $4.00 Q15.24 = 26,25c
number of shares = $2,000,000 Q50c = 4 millionCan you please advise what is meant by those “Q”?
Many thanks.
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