- 20 Marks
FM – NOV 2021 – L2 – Q1 – Economic and regulatory environment | Sources of finance: equity
Functions of the Securities and Exchange Commission and National Insurance Commission; calculation and analysis of a rights issue by LIGRI Bank Ghana Ltd.
Question
a. The Securities and Exchange Commission and the National Insurance Commission are part of a list of regulators established by an Act of Parliament. They play a very critical role in the regulation of the financial services sector in the country.
Required:
i) Explain THREE (3) main functions played by the Securities and Exchange Commission in Ghana. (6 marks)
ii) Explain TWO (2) functions performed by the National Insurance Commission in Ghana. (4 marks)
b) LIGRI Bank Ghana Ltd generates a profit after tax of 15% on shareholders’ funds. The current capital structure of the bank is as follows:
| Item | GH¢ |
|---|---|
| Ordinary shares | 40,000,000 |
| Reserves | 80,000,000 |
| Total | 120,000,000 |
The management, with the board’s approval, wishes to raise GH¢50,000,000 from a rights issue to expand their existing operations in the country. The return on shareholders’ funds will not change. The current ex-dividend market price is GH¢4 per share. The right issue price proposed by the Finance Director is GH¢3.8 per share.
Required:
i) Calculate the total number of shares to be issued by the company. (3 marks)
ii) Determine the theoretical ex-right price per share after the issue. (3 marks)
iii) Calculate the new earnings per share after the rights issue. (3 marks)
iv) Comment on the calculations of the theoretical ex-right price calculated in ii) above. (1 mark)
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