Factors that have limited the development of the venture capital market:
Venture capital is a form of investment in new small risky enterprises required to get
them started by specialists called venture capitalists. Venture capitalists are investment
specialists who raise pools of capital to fund new ventures which are likely to become
public corporations in return for an ownership interest. Venture capitalists buy part of
the stock of the company at a low price in anticipation that when the company goes
public, they would sell the share at a higher price and therefore make a considerable
profit.
-Lack of rich investors. This leads to inadequate equity capital.
-Inefficient stock market. This impairs the ability of the company to dispose of shares
- at a later date.
- Lack of managerial skills by the owners of the firm.
-Highly conservative approach by the venture capitalists
marto answered the question on February 11, 2019 at 10:35
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Date posted: February 11, 2019. Answers (1)
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Swaleh Ltd. has been in operation for the last eight years. The company is all equity
financed with 6 million ordinary shares with a par value of Sh.5 each. The current
market price per share is Sh.8.40, which is in line with the price/earnings (P/E) ratio in
the industry of 6.00. The company has been consistent in paying a dividend of Sh.1.25
per share during the last five years of its operations, and indications are that the current
level of operating income can be maintained in the foreseeable future. Tax has been at a
rate of 30%.
The management of Swaleh Ltd. is contemplating the implementation of a new project
which requires Sh.10 million. Since no internal sources of funds are available,
management is to decide on two alternative sources of finance, namely:
Alternative A
To raise the Sh.10 million through a rights issue. Management is of the opinion that a
price of Sh.6.25 per share would be fair.
Alternative B
To obtain the Sh.10 million through a loan. Interest is to be paid at a rate of 12% per
annum on the total amount borrowed.
The project is expected to increase annual operating income by Sh.5.6 million in the
foreseeable future.
Irrespective of the alternative selected in financing the new project, corporation tax is
expected to remain at 30%.
Required:
(i) Determine the current level of earnings per share (EPS) and the operating
income of the company.
(ii) If Alternative A is selected, determine the number of shares in the rights issue
and the theoretical ex-rights price.
(iii) Calculate the expected earnings per share (EPS) for each alternative, and advise
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Date posted: February 11, 2019. Answers (1)
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Date posted: February 11, 2019. Answers (1)
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Magma Ltd. wishes to make a choice between two mutually exclusive projects. Each of
these projects requires Sh.400,000,000 in initial cash outlay. The details of the two
projects are as follows:
Project A
This project is made up of two sub-projects. The first sub-project will require an initial
outlay of Sh.100,000,000 and will generate Sh.25,600,000 per annum in perpetuity. The
second sub-project will require an initial outlay of Sh.300,000,000 and will generate
Sh.85,200,000 per annum for the 8 years of its useful life. This sub-project does not
have a residual value at the end of the 8 years. Both sub-projects are to commence
immediately.
Project B
This project will generate Sh.87,000,000 per annum in
perpetuity. The company has a cost of capital of 16%.
Required:
(i) Determine the net present value (NPV) of each project.
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Date posted: February 11, 2019. Answers (1)
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share is 15%.
Required:
Compute the market price of Bidii Ltd's ordinary share
Date posted: February 11, 2019. Answers (1)
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(b) Identify and briefly explain the...(Solved)
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(b) Clearly distinguish between 'factoring' and 'invoice discounting' in the context of the
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should be if there is any chance than the issue may be unsuccessful'. Briefly comment
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Date posted: February 11, 2019. Answers (1)
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(a) Briefly explain the difference between a broker and a dealer in the stock market.
(b) What are the advantages of having a dealer in a stock market? (6 marks)
(c) (i)What are the advantages of a central depository system (CDS) for a stock
market?
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Date posted: February 11, 2019. Answers (1)
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sales level has greatly increased in the recent years, and the demand for its products is
expected to increase for the foreseeable future. The company has 900,000 outstanding
shares which are currently trading in the stock exchange at Sh.130 a share. The finance
manager estimates that the fixed assets will cost Sh.22,500,000 and he has convinced the
board of directors to raise the money through a rights issue. The board has set the
subscription price at Sh.75 per share.
Required:
(i) The number of rights required to purchase a new share.
(ii) The price of one share after the rights issue.
(iii) The theoretical value of the rights if the shares are sold ex-right.
(iv) The effect on a shareholder's wealth if he decides neither to exercise nor sell
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company's daily cash changes is Sh.200,000. The annual interest rate is
14%. The transaction cost of buying or selling securities is Sh.150 per transaction.
Required:
Using the Miller-Orr cash management model, determine the following:
(i) Upper cash limit
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(iii) The return point.
(c) Explain briefly the meaning of the term 'over trading'.
Date posted: February 11, 2019. Answers (1)
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The following information represents the financial position and financial results of
AMETEX Limited for the year ended 31 December 2002.
Required:
Determine the following financial ratios:
(i) Acid test ratio.
(ii) Operating ratio
(iii) Return on total capital employed
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Date posted: February 11, 2019. Answers (1)
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The preference shares were issued four years ago and still sell at their face value.
Assume a tax rate of 30%
Required:
(i) The expected rate of return on ordinary shares.
(ii) The effective cost to the company of:
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Date posted: February 11, 2019. Answers (1)
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In recent years, there has been a trend towards 'cross-border' listing of securities of
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Required:
(a) Explain the meaning of 'cross-border' listing.
(b) Identify and explain six reasons why companies in your country may seek 'cross border' listing.
(c) Identify five barriers to “cross-border” listing.
Date posted: February 11, 2019. Answers (1)
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Required:
(a) Briefly explain the meaning of a 'floating rate' bond.
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Date posted: February 11, 2019. Answers (1)