Advantages of right issue from the view point of
(i) Issuing company
- Lower floating costs
- Increase equity base of the firms and increase future borrowing capacity
- Legal and administrative procedures are easier e.g. no need for a prospectus
(ii) Shareholders
- No dilution in owner or voting power of the investors
- All shareholders benefit by buying new shares at a discount from the company
- There is a possible increase in future dividend income after generating additional returns from invested
capital raised through rights issues
marto answered the question on February 11, 2019 at 11:31
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management is considering whether to replace an existing cooler with a new one.
The...(Solved)
Mapato Limited is a company involved in the processing of cooking oil. The
management is considering whether to replace an existing cooler with a new one.
The old cooler is fully depreciated and has no salvage value. If not replaced, the
company will continue to incur Sh.1.8 million as annual operating expenses and an
additional Sh.500,000 in repair costs per annum over the next fifteen years.
The new cooler costs Sh.3,150,000. Its annual operating expenses and repair costs are
estimated at Sh.1.3 million and Sh.350,000 respectively over its estimated economic life
of fifteen years. It is expected to be worthless after the expiry of this period.
The cost of capital is 10% and the company depreciates its assets using the straight-line
method.
Assume a 30% corporation tax rate.
Required:
(i) Compute the incremental net annual cash flows if the old cooler is replaced.
(ii) Using the net present value (NPV) method, advise the management on whether
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Date posted: February 11, 2019. Answers (1)
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The management of Faulu Limited intends to change the company‟s credit
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bad debts will increase from 1% to 1.4% of credit sales. A new credit assistant will also
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credit customers will benefit from the cash discount.
The inventory level and the variable costs will however remain constant at 20% and
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annum. All sales are on credit.
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Date posted: February 11, 2019. Answers (1)
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a change of credit policy which will result in an increase in...(Solved)
Dawamu Ltd, which operates in the retail sector selling a single product, is considering
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of debts from one to two months. The relaxation of the credit policy is expected to
produce an increase in sales in each year, amounting to 25% of the current sales
volume. The following information is available.
1. Selling price per unit of product – Sh.1,000
2. Variable cost per unit of product – Sh.850
3. Current annual sales of product – Sh.240,000,000
4. Dawamu Ltd.'s required rate of return on investments is 20%.
5. It is expected that increase in sales would result in additional stock of
Sh.10,000,000 and additional creditors of Sh.2,000,000.
Required:
Advise Dawamu Ltd. on whether or not to extend the credit period offered to
customers, if
(i) All customers take the longer credit period of two months.
(ii) Existing customers do not change their payment habits and only the new
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Date posted: February 11, 2019. Answers (1)
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(i) Market value and intrinsic value of a share.
(ii) Weighted cost of capital and marginal cost of capital....(Solved)
Differentiate between the following pairs of terms:
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(ii) Weighted cost of capital and marginal cost of capital.
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(iv) Formal markets and over-the-counter markets.
Date posted: February 11, 2019. Answers (1)