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Issue of equity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Issue of equity

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • November 30, 2015 at 10:30 am #286363
    Hafsa
    Member
    • Topics: 11
    • Replies: 8
    • ☆

    Hi sir,
    Im sorry for the long question. There are 4 questions basically. Unfortunately the answers have no explanation .Can you please solve them for me?
    This data relates to question 1-4

    A company is investing $70m in a new project and will be funding part of the investment by debt
    and the remainder by equity through a rights issue. The current share price is $4 and the market
    capitalisation is $200m. The rights issue price will be at a discount of 20% to the current share
    price. The rights issue will be on a 1 for 5 basis

    Issue costs are expected to be $2m. Current equity gearing (debt/equity) is 40%

    Q1 How many new shares will be issued?

    A 5 million

    B 10 million

    C 50 million

    D 60 million

    Q2 How much gross funding is raised by the rights issue?

    A $16m

    B $20m

    C $32m

    D $40m

    Q3 What is the theoretical ex rights price?

    A $3.87

    B $4.00

    C $4.64

    D $5.00

    Q4 What is the revised equity gearing of the company?

    A 40.0%

    B 42.9%

    C 40.7%

    D 41.5%

    November 30, 2015 at 11:54 am #286397
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51583
    • ☆☆☆☆☆

    I am sorry, but we cannot simply provide answers to a long list of test questions. You should insist of getting explanations from wherever you got the questions. If you then do not understand the workings then by all means ask – say which bit you do not understand and I will try and help.

    Everything you need to answer these questions is explained in full in our free lectures (they are a complete course for Paper F9 and cover everything you need to pass the exam well).

  • Author
    Posts
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