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Hi,
I am sitting f9 this week as a resit. I have watched all the lectures and read through the textbooks and notes I have yet this topic is something I am really struggling with.
I have come across questions asking to calculate and discuss whether cash raised by rights issue to buy back loan notes are acceptable. And discuss the effect of using cash raised on financial risk. (The question is Bar Co)
I have no idea where to start…. is there any last minute points you can give me or an idea of things to consider when trying to answer questions like this.
Or if there are any lectures/question analysis I can watch to get to grips with before my examI would be very grateful
Thanks
HayleyFirstly, don’t panic – especially when you are looking at an old exam style and standard Q (this is from D11). For more relevant exam style and standard Qs on rights issues see S16 Q15, D16 Q2 and Q31(c).
If you should get something more difficult read the whole requirement carefully for any prompts. For example, this requirement was “(c) Calculate and discuss the effect of using the cash raised by the rights issue to buy back bonds on the financial risk of Bar Co, AS MEASURED BY ITS INTEREST COVERAGE RATION AND ITS BOOK VALUE DEBT TO EQUITY RATIO.
(4 marks)”So if you start by calculating current and revised (i) interest cover and (ii) debt to equity ratio (i.e. calculate each before and after using the cash to buy back the shares) – you’ll actually have 3 of the 4 available marks.
Thank you for help. I will look over the questions you mentioned above. Is it likely that questions on rights issues will only come up as multiple choice or small marks questions if it is part of a section c.
I have tried for ages to understand p/e ratio, eps calcs and they do not stick in my head.
After seeing this question today in total worth 15-20 marks and not being able.to know where to start is starting to stress me out a bit. This is the 3rd attempt of this paper and as much as I think i am getting somewhere there are still a lot of things I’m stressing overThanks
HayleyI suggest you look also at Specimen Q32 DD Co.
There is only one LO in the syllabus that specifically mentions rights issue (E1c)i)).
Earnings per share is only specifically mentioned in A2b)iii) and A3d)i) and p/e ratio is mentioned only in F2b)i). Therefore, as Section C of the exam will be drawn from topics in syllabus areas C, D and E, I think it’s far more important that you should be “all over” working capital management and investment appraisal.
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