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Forums › ACCA Forums › ACCA FM Financial Management Forums › anyone knows how to solve this question? Thank you
I unable to get the answer , anyone knows how to do?
STES is a listed ungeared company in Malaysia with paid capital of 150m shares. At year ending 31 Dec 2019, its market capitalisation stood at $1050m with earnings before interest and tax of $80m. The Directors predicts that its earnings to increase by 15% for the following year (2020) as a result of several government projects.
The company wishes to raise $270m (net) to finance its operations next year, and has considered the following options:
Option 1: Offer right issue at 20% discount of its market price, or
Option 2: Issue 6% loan notes at par value.
If the first option is selected, there will be $10m transaction cost from the amount raised. It is expected that price earning (P/E) ratio will remain same throughout the forthcoming year.
For the second option, it is estimated that the P/E ratio will fall by 10% by end of year 2020. There will be transaction cost amounting to $5.5m from the amount the raised.
The tax rate for company is 25%
Q1.
Determine the price of an equity share in STES in one year’s time assuming finance raised through right issue.
ANSWER : $6.04
Q2.
Determine the price of an equity share in STES in one year’s time assuming finance raised the loan note.
ANSWER: $5.94
Thank you.
