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i) Best efforts offering
This is a system used by investment bankers where they agree to sell as many securities as they
can at an established price. They have no responsibility for securities unsold.
ii) Pre-emptive right
Existing common stockholders have the right to preserve their proportionate ownership in
corporation. E.g. rights issue
iii) Green shoe provision.
Underwrites often obtain the option to purchase additional stock at the offering price.
This option usually last several weeks after the offering.
Kavungya answered the question on March 30, 2022 at 08:45
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Date posted: March 30, 2022. Answers (1)
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Bidii Ltd expects a return on investment (ROI) of 24 % on proposed investment projects whose total cost is 5,000,000. In order to finance these investment projects the company is considering two options.
Option one
Issue 500,000 ordinary shares at a par value of sh. 10 each.
Option two
Issue 250,000 ordinary shares at a par value of sh. 10 each and obtain the balance through a bank loan at an interest rate of 15% per annum.
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Required:
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Date posted: March 30, 2022. Answers (1)
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The company raised sh. 150 million by floating new ordinary shares on 1 January 2009. The
company’s profit margin on sales is 6 percent. 60 per cent of the earnings attributable to ordinary
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Required:
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ii) The new long term – debt financing that will be needed in the year 2009.
Date posted: March 30, 2022. Answers (1)
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Additional information;-
1. For the year ended 30 June 2011, sales amounted to Sh.360, 000,000. Sales are projected to rise
by 15% in the year ending 30 June 2012 and by 20% in the year ending 30 June 2013.
2. The after tax return on sales is 8%, which shall be maintained in future.
3. The company intends 10 maintain a dividend payout ratio of 80%.
4. Any additional financing from external sources will be affected through the issue of commercial paper by the company.
Required:
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Date posted: March 30, 2022. Answers (1)
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Required:
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Date posted: March 30, 2022. Answers (1)
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Date posted: March 30, 2022. Answers (1)
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Date posted: March 30, 2022. Answers (1)
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The...(Solved)
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The following additional information is available:
1. Alpha Ltd. is financed using Sh. 120 million worth of ordinary shares.
2. Beta Ltd. is financed using Sh.70 million in ordinary shares and Sh.50 million in 8% debentures.
3. The annual earnings before interest and tax are Sh.10 million for both firms. These earnings
are expected to remain constant indefinitely.
4. The cost of equity of Alpha Ltd. is 10%.
5. The corporate tax rate is 30%.
Required;-
Using the Modigliani and Miller (MM) model, compute:
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Date posted: March 30, 2022. Answers (1)
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