BMAN23000A Question 14 (answer all parts) a) Explain in detail the different sources of equity financing for private firms. Which source of finance is preferable? Why? (15 marks) b) Fay Plc is planning to sell 20 million shares of stock in a seasoned equity offering (SEO). The current market price of Fay is 12.5 per share. Of the 20 million shares to be sold, 12 million shares are new (primary) shares being offered by the company, and the remaining 8 million shares are to be sold by venture capitalists. Fay's underwriters charge an underwriting fee of 3.5% of the gross proceeds. 1. How much capital will Fay Plc be able to raise from the above SEO? (6 marks) II. How much funds will the venture capitalists receive? (6 marks) III. Fay Plc originally had 200 million shares of stock outstanding at a price of 12.5 per share. What if the company executives had announced a rights issue instead of a SEO? Details of the right issue: "Every existing shareholder will be given one right per share of stock that he or she owns. The company plans to require sixteen (16) rights to purchase one share at a price of 10 per share. How much capital would the company be able to raise? (8 marks) END OF EXAMINATION PAPER (Total 35 marks)