Topic: Sources of finance: equity

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 5 Marks

FM – April 2022 – L2 – Q4c – Sources of finance: equity

Explain the concept of pre-emptive rights and rights issues, and discuss the advantages to a company for using a rights issue to raise additional capital.

Existing shareholders have some advantages available to them that potential shareholders interested in buying shares from the company do not have. Some of those advantages are pre-emptive rights and rights issues.

Required:
i) Explain the term Pre-emptive rights. (2 marks)
ii) Explain the concept of a Rights issue and explain ONE (1) advantage to a company for using rights issues to raise additional capital. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – April 2022 – L2 – Q4c – Sources of finance: equity"

  • 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.

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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – NOV 2021 – L2 – Q1 – Economic and regulatory environment | Sources of finance: equity"

  • 10 Marks

FM – Nov 2017 – L2 – Q1b – Sources of finance: equity

Discuss reasons, prior considerations, and methods of marketing security for a company seeking quotation on the Ghana Stock Exchange.

A private company is desirous of obtaining quotation on the Ghana Stock Exchange.

Required:
i) The likely reasons for seeking quotation. (4 marks)
ii) The prior considerations. (3 marks)
iii) The methods of marketing the security. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2017 – L2 – Q1b – Sources of finance: equity"

  • 20 Marks

FM – MAR 2024 – L2 – Q1 – Introduction to Financial Management | Sources of finance: equity

Discusses the concept of corporate governance, the roles of a company's board of directors, best practices in corporate governance, and methods of raising capital through share issues.

a) The shareholders of Abontim Ghana Ltd, who also serve as the directors of the company, have been informed that good corporate governance is crucial to achieving sustainable financial performance. They want to know more about the concept of corporate governance and what needs to be done to enhance the company’s corporate governance.

Required:

i) Explain the concept of corporate governance.
(2 marks)

ii) Explain TWO (2) roles the company’s board of directors is expected to play in corporate governance.
(4 marks)

iii) Explain TWO (2) corporate governance best practices.
(4 marks)

b) Shanto Ghana Ltd is considering raising capital by issuing shares using the three methods below:

i) Placement method
ii) Offer for sale method
iii) Offer for sale by tender

Required:

Explain each of the above methods citing one advantage each.
(10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – MAR 2024 – L2 – Q1 – Introduction to Financial Management | Sources of finance: equity"

  • 25 Marks

FM – NOV 2018 – L2 – Q2 – Islamic Finance | Sources of finance: equity

Covers Islamic finance focusing on Riba, rights issue calculations and determining the cost of capital for projects.

a) Islamic financing is an emerging model of financing in the global financial markets.

Required:

i) Explain the term Riba in Islamic Finance.
(2 marks)

ii) Explain the THREE (3) perspectives from which Riba can be viewed as forbidden or unacceptable in Islamic Finance.
(3 marks)

b) The Board of Directors of Continental Bank Ghana Ltd (CBGL) decided through a Board resolution to raise additional capital through rights issue to meet the new capital requirement by Bank of Ghana. CBGL plans to issue 1 new share for every 3 shares held by existing shareholders at 10% discount to its existing market price. CBGL currently has 6 million shares in issue at a book value of 2 cedis per share. CBGL maintains a dividend payout ratio of 50% and earnings per share currently is 1.6 cedis. Dividend growth is 5% per annum and this is expected into the foreseeable future. CBGL’s cost of equity is 15%. The issue cost is 600,000 cedis.

Required:

i) Calculate the market price per share.
(2 marks)

ii) Calculate the capitalization of CBGL.
(2 marks)

iii) Calculate the rights issue price.
(2 marks)

iv) Calculate the theoretical ex-right price.
(2 marks)

v) Calculate the market capitalization after the rights issue.
(2 marks)

c) KAF is a manufacturer of consumer electronics based in Accra, Ghana. KAF finances its investments with a combination of equity and debt. Its equity capital comprises 10 million shares which are currently trading on the stock exchange at GH¢2.55 per share. Its equity beta is 2.1 currently. The return on the risk-free security is 12.5% while the equity risk premium is 10%.

Included in KAF’s debt stock are irredeemable bonds that have a total face value of GH¢10 million while their total market value is GH¢12 million. The annual coupon of the irredeemable bonds is 18% but is paid semiannually.

The directors of the company are considering two new investment opportunities, which are described below:

  • Project 1: This is an expansion project in the consumer electronics manufacturing industry. It involves the setting up of a new factory in the northern part of Ghana. KAF would finance it with existing capital.
  • Project 2: This involves the installation of a new factory to manufacture furniture for export to foreign markets. Although this investment is a completely new line of business, KAF plans to finance it with existing capital. The average equity beta for the furniture manufacturing industry is 1.52 and the average industry capital structure is 60% equity and 40% debt.

It is expected that KAF’s tax rate will remain at 22%.

Required:

i) Compute the cost of capital that should be used as a discount rate for appraising Project 1.
(5 marks)

ii) Compute the cost of capital that should be used as a discount rate for appraising Project 2.
(5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – NOV 2018 – L2 – Q2 – Islamic Finance | Sources of finance: equity"

  • 5 Marks

FM – April 2022 – L2 – Q4c – Sources of finance: equity

Explain the concept of pre-emptive rights and rights issues, and discuss the advantages to a company for using a rights issue to raise additional capital.

Existing shareholders have some advantages available to them that potential shareholders interested in buying shares from the company do not have. Some of those advantages are pre-emptive rights and rights issues.

Required:
i) Explain the term Pre-emptive rights. (2 marks)
ii) Explain the concept of a Rights issue and explain ONE (1) advantage to a company for using rights issues to raise additional capital. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – April 2022 – L2 – Q4c – Sources of finance: equity"

  • 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.

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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – NOV 2021 – L2 – Q1 – Economic and regulatory environment | Sources of finance: equity"

  • 10 Marks

FM – Nov 2017 – L2 – Q1b – Sources of finance: equity

Discuss reasons, prior considerations, and methods of marketing security for a company seeking quotation on the Ghana Stock Exchange.

A private company is desirous of obtaining quotation on the Ghana Stock Exchange.

Required:
i) The likely reasons for seeking quotation. (4 marks)
ii) The prior considerations. (3 marks)
iii) The methods of marketing the security. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2017 – L2 – Q1b – Sources of finance: equity"

  • 20 Marks

FM – MAR 2024 – L2 – Q1 – Introduction to Financial Management | Sources of finance: equity

Discusses the concept of corporate governance, the roles of a company's board of directors, best practices in corporate governance, and methods of raising capital through share issues.

a) The shareholders of Abontim Ghana Ltd, who also serve as the directors of the company, have been informed that good corporate governance is crucial to achieving sustainable financial performance. They want to know more about the concept of corporate governance and what needs to be done to enhance the company’s corporate governance.

Required:

i) Explain the concept of corporate governance.
(2 marks)

ii) Explain TWO (2) roles the company’s board of directors is expected to play in corporate governance.
(4 marks)

iii) Explain TWO (2) corporate governance best practices.
(4 marks)

b) Shanto Ghana Ltd is considering raising capital by issuing shares using the three methods below:

i) Placement method
ii) Offer for sale method
iii) Offer for sale by tender

Required:

Explain each of the above methods citing one advantage each.
(10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – MAR 2024 – L2 – Q1 – Introduction to Financial Management | Sources of finance: equity"

  • 25 Marks

FM – NOV 2018 – L2 – Q2 – Islamic Finance | Sources of finance: equity

Covers Islamic finance focusing on Riba, rights issue calculations and determining the cost of capital for projects.

a) Islamic financing is an emerging model of financing in the global financial markets.

Required:

i) Explain the term Riba in Islamic Finance.
(2 marks)

ii) Explain the THREE (3) perspectives from which Riba can be viewed as forbidden or unacceptable in Islamic Finance.
(3 marks)

b) The Board of Directors of Continental Bank Ghana Ltd (CBGL) decided through a Board resolution to raise additional capital through rights issue to meet the new capital requirement by Bank of Ghana. CBGL plans to issue 1 new share for every 3 shares held by existing shareholders at 10% discount to its existing market price. CBGL currently has 6 million shares in issue at a book value of 2 cedis per share. CBGL maintains a dividend payout ratio of 50% and earnings per share currently is 1.6 cedis. Dividend growth is 5% per annum and this is expected into the foreseeable future. CBGL’s cost of equity is 15%. The issue cost is 600,000 cedis.

Required:

i) Calculate the market price per share.
(2 marks)

ii) Calculate the capitalization of CBGL.
(2 marks)

iii) Calculate the rights issue price.
(2 marks)

iv) Calculate the theoretical ex-right price.
(2 marks)

v) Calculate the market capitalization after the rights issue.
(2 marks)

c) KAF is a manufacturer of consumer electronics based in Accra, Ghana. KAF finances its investments with a combination of equity and debt. Its equity capital comprises 10 million shares which are currently trading on the stock exchange at GH¢2.55 per share. Its equity beta is 2.1 currently. The return on the risk-free security is 12.5% while the equity risk premium is 10%.

Included in KAF’s debt stock are irredeemable bonds that have a total face value of GH¢10 million while their total market value is GH¢12 million. The annual coupon of the irredeemable bonds is 18% but is paid semiannually.

The directors of the company are considering two new investment opportunities, which are described below:

  • Project 1: This is an expansion project in the consumer electronics manufacturing industry. It involves the setting up of a new factory in the northern part of Ghana. KAF would finance it with existing capital.
  • Project 2: This involves the installation of a new factory to manufacture furniture for export to foreign markets. Although this investment is a completely new line of business, KAF plans to finance it with existing capital. The average equity beta for the furniture manufacturing industry is 1.52 and the average industry capital structure is 60% equity and 40% debt.

It is expected that KAF’s tax rate will remain at 22%.

Required:

i) Compute the cost of capital that should be used as a discount rate for appraising Project 1.
(5 marks)

ii) Compute the cost of capital that should be used as a discount rate for appraising Project 2.
(5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – NOV 2018 – L2 – Q2 – Islamic Finance | Sources of finance: equity"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan