Hello Goodbye Ltd$.($HG$)$ is a mobile network provider listed in the telecommunication

section of the Johannesburg Stock Exchange $($JSE$).$

HG is currently planning on expanding the entity$$s network infrastructures. This will

however require HG to obtain funding worth R$26$ million.

The following potential financial instruments have been identified for future evaluation:

Ordinary shares

HG can issue $400000$ ordinary shares. HG has a beta of $1\mathrm{.}08$ and the entity is

currently growing at a rate of $9\mathrm{.}7\%$ per annum. This growth is however expected to

decrease by $6\mathrm{.}2\%$ after $4$ years. At that point in time, the growth rate at the time will

proceed into the foreseeable future.

The average yield in the telecommunication market is $12\mathrm{.}3\%.$ South African $10$Y

government bonds, which are $10-$year bonds, offer a $10\mathrm{.}12\%$ rate of return per annum.

HG will pay a dividend of R$7\mathrm{.}70$ per share at the beginning of the third year after the

ordinary shares have been issued. The entity will proceed with these payments at the

beginning of each year thereafter and only move the dividends$$ payment to the end of

each year when the sixth year after issuing the shares, dividend is to be paid. All

dividends will however be kept in line with the entity$$s prevailing growth rate.

Cumulative redeemable preference shares

Another financing alternative is to issue $11\mathrm{.}84\%$ cumulative preference shares that will

be redeemed by HG after $5$ years. Preference shares with similar terms in the

telecommunication sector are offering a return of $11\mathrm{.}92\%$ per annum.

The dividends on these preference shares will be payable quarterly in advance. The

dividends of the first $2$ years will however not be paid and their payment will only occur

when the dividend thereafter is scheduled for payment. From this point in time the

preference shareholders will receive their dividends regularly.

These preferences shares will be given a face value of R$30$ each.

ANNEXURE I: FORMATIVE ASSESSMENT $2$

$95$ HFMN$230-1-$Jul$-$Dec$2023-$FA$2-$V$3-$ES$-17072023$

REQUIRED:

$1\mathrm{.}1.$ Refer to Hello Goodbye Ltd$.$s ordinary shares option. Calculate the rate of

return of the ordinary shares.

$(4$ marks$)$

$1\mathrm{.}2.$ Refer to Hello Goodbye Ltd$.$s ordinary shares option. Assist Hello Goodbye

Ltd$.$ in determining the current value of an ordinary share at the time of issue.

$(20$ marks$)$

$1\mathrm{.}3.$ Refer to Hello Goodbye Ltd$.$s ordinary shares option. For only questions $1\mathrm{.}3.$

and $1\mathrm{.}4.$ make the following assumptions:

$$ Hello Goodbye Ltd already have $30000000$ ordinary shares in issue

$($prior to issuing the potential ordinary shares in the above scenario$).$

$$ Hello Goodbye Ltd$.$ wishes to only offer the potential ordinary shares to

shareholders who currently owns ordinary shares.

$$ Hello Goodbye Ltd will issue the potential ordinary shares at the potential

ordinary$$s present value.

$$ Hello Goodbye Ltd$.$s ordinary shares are currently trading on the JSE at

R$88$ per ordinary share.

$1\mathrm{.}3\mathrm{.}1.$ Calculate the total value of each ordinary share after the potential ordinary

shares have been issued to the current ordinary shareholders.

$(8$ marks$)$

$1\mathrm{.}3\mathrm{.}2.$ Calculate and interpret the issue ratio of the potential ordinary shares.

$(3$ marks$)$

$1\mathrm{.}4.$ Answer the following short questions:

$1\mathrm{.}4\mathrm{.}1.$ What is the formal financial name used for the value of the ordinary shares in

question $1\mathrm{.}3.?$

$(1$ mark$)$

$1\mathrm{.}4\mathrm{.}2.$ Will it be possible for Hello Goodbye Ltd to issue the potential ordinary shares

at these instrument$$s present value? Motivate your answer.

$(2\mathrm{.}5$ marks$)$

ANNEXURE I: FORMATIVE ASSESSMENT $2$

$96$ HFMN$230-1-$Jul$-$Dec$2023-$FA$2-$V$3-$ES$-17072023$

$1\mathrm{.}4\mathrm{.}3.$ Will Hello Goodbye Ltd be able to raise enough finances through issuing only

the potential ordinary shares? Supplement your answer with calculations as

motivation.

$(3\mathrm{.}5$ marks$)$

$1\mathrm{.}4\mathrm{.}4.$ Provide the minimum quantity of shares that an entity must have in issue to

meet the JSE $($main board$)$ requirements?

$(1$ marks$)$

$1\mathrm{.}5.$ Refer to Hello Goodbye Ltd$.$s cumulative redeemable preference shares

option. Assist Hello Goodbye Ltd$.$ in determining the current value of each

preference share at the time of issue.

$(20$ marks$)$

Round to two decimals where required