FIN 4801
ASIGNMENT 05 2023
QUESTION 1
(Capital structure decision making, learning units 7, 13 and 14)
a. Determine the amount of funding that the company requires and the amount of
rights the company would have to issue if it is assumed that transaction and related
costs amount to 10% of the value of each right issued, while it is expected that the
issue will be fully taken up if the price of a right is set to 20c.
The amount of funding required = R30 000 000 + R20 000 000 = R50 000 000
Including transaction costs = 100% x R50 000 000 = R55 555 556
90%
The number of Rights the Company would have to Issue:
To raise R55.56m the company will have to issue = 277 777 778 shares [ R55 555
556/R0.2]
CALCULATIONS
DETAILS AMOUNT (R)
Amount Required for implementing Turn Around 30 000 000
Amount Required for Repayment of Debt 20 000 000
Total Funds required by the company 50 000 000
Floating costs 10%
Net Receivable Funds 90%
Total Rights to be issued in % [10% + 90%] 100%
Total Rights to be issued in Amount: R55 555 556
[R50 000 000 × 100%]
90%
Rights Price 0.20
Number of Rights to be issued: 277 777 778
[R55 555 556 ÷ 0.20]
, b)
Show the journal entry (general ledger) that you would record for this transaction. Just
the accounts and the amounts would suffice.
DR CR
Bank R55 555 556
Share capital R55 555 556
c)
Calculate the theoretical price per share after the issue and the WACC for the company
after the rights issue. *HINT: equity would be the theoretical price per share multiplied by
the new amount of shares outstanding.
Theoretical ex-rights price
300m existing shares at 50c = R150 000 000
277.78m new shares at 20c = R55 555 556
Market value after issue R205 555 556
Total number of shares after issue: [300 000 000 + 277 777 778] = 577 777 778
Theoretical value of shares after the rights issue:
= Market value after issue
Number of shares after issue
= R205 555 556
577 777 778
= R0.36 or 36 cents
The theoretical post issue price of 14 cents is lower than the current share price but
substantially higher than the subscription price of 20 cents.
Theoretical share value post issue = R0.36
ASIGNMENT 05 2023
QUESTION 1
(Capital structure decision making, learning units 7, 13 and 14)
a. Determine the amount of funding that the company requires and the amount of
rights the company would have to issue if it is assumed that transaction and related
costs amount to 10% of the value of each right issued, while it is expected that the
issue will be fully taken up if the price of a right is set to 20c.
The amount of funding required = R30 000 000 + R20 000 000 = R50 000 000
Including transaction costs = 100% x R50 000 000 = R55 555 556
90%
The number of Rights the Company would have to Issue:
To raise R55.56m the company will have to issue = 277 777 778 shares [ R55 555
556/R0.2]
CALCULATIONS
DETAILS AMOUNT (R)
Amount Required for implementing Turn Around 30 000 000
Amount Required for Repayment of Debt 20 000 000
Total Funds required by the company 50 000 000
Floating costs 10%
Net Receivable Funds 90%
Total Rights to be issued in % [10% + 90%] 100%
Total Rights to be issued in Amount: R55 555 556
[R50 000 000 × 100%]
90%
Rights Price 0.20
Number of Rights to be issued: 277 777 778
[R55 555 556 ÷ 0.20]
, b)
Show the journal entry (general ledger) that you would record for this transaction. Just
the accounts and the amounts would suffice.
DR CR
Bank R55 555 556
Share capital R55 555 556
c)
Calculate the theoretical price per share after the issue and the WACC for the company
after the rights issue. *HINT: equity would be the theoretical price per share multiplied by
the new amount of shares outstanding.
Theoretical ex-rights price
300m existing shares at 50c = R150 000 000
277.78m new shares at 20c = R55 555 556
Market value after issue R205 555 556
Total number of shares after issue: [300 000 000 + 277 777 778] = 577 777 778
Theoretical value of shares after the rights issue:
= Market value after issue
Number of shares after issue
= R205 555 556
577 777 778
= R0.36 or 36 cents
The theoretical post issue price of 14 cents is lower than the current share price but
substantially higher than the subscription price of 20 cents.
Theoretical share value post issue = R0.36
