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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › query
1. how can share buyback alter the capital structure(cost of capital) ?
2. isn’t rights issue dilute the shareholding ownership ? if rights issue is given to existing shareholders, dilution do not occur but if rights issue was given to new shareholders, shareholding ownership will be affected ?
i do not understand why the textbook says that rights issue do not dilute the shareholding ownership
3. in disadvantages of islamic finance, it says principal agent issues may be pronounced between islamic finance istitutions(IFI) and organizations and individuals to whom they lend funds. And information asymmetry will always exist between IFI and borrower of funds. What does this mean ?…… i’m not sure how information asymmetry can exist between this 2 parties….
4. in another disadvantages of islamic finance, it says that islamic finance contracts cause agency type issues within corporation. furthermore, these may be more prevalent in joint venture type situations or where the diverse range of stakeholders may make it more difficult for corporations to determine and act upon the importance of various stakeholder groups.
Does this mean that there are too many parties in the contract therefore it is hard to act upon the importance of all stakeholder groups ?
1. If they buy back shares then share capital is reduced.
2. By definition, rights issues are issues of shares to existing shareholders.
3. They are lending funds based on assets they hold and they will have more information about the assets.
4. Correct 🙂
