JANUARY/FEBRUARY 2020 Question 4.2 (10 marks) I Eduwize Ltd is a comprehensive, listed and accredited education provider that owns a variety of educational institutions from preschools to universities, offering qualifications up to master's degree level. The company has been listed for many years now and the original owners and management own a substantial portion of the issued shares. Recently, the management of the company has felt that the current market price of its shares of R100 is lower than they believe the company to be worth. There has also been market activity that suggests that a competitor is gearing up to attempt a takeover of Eduwize. The company currently has the following balances on its statement of financial position: Cash Total other assets Stated capital Retained earnings Total liabilities R4 billion R2 billion R100 million R3 billion R1 billion The management of the company wants to initiate a general share buyback in order to repurchase as many shares as possible in the open market with R1 billion of its retained earnings. Each share would be purchased for R110 in the open market. The company currently has 100 million shares outstanding of which the management and original owners together own 41%, of which none will be bought in the process. Required: Evaluate the decision to repurchase shares. Provide a brief report on how the repurchase will affect the control (current and potential future) of the company as well as its profitability (ROE and EPS) and future financing opportunities. Ignore any tax implications. JANUARY/FEBRUARY 2020 Question 4.2 (10 marks) I Eduwize Ltd is a comprehensive, listed and accredited education provider that owns a variety of educational institutions from preschools to universities, offering qualifications up to master's degree level. The company has been listed for many years now and the original owners and management own a substantial portion of the issued shares. Recently, the management of the company has felt that the current market price of its shares of R100 is lower than they believe the company to be worth. There has also been market activity that suggests that a competitor is gearing up to attempt a takeover of Eduwize. The company currently has the following balances on its statement of financial position: Cash Total other assets Stated capital Retained earnings Total liabilities R4 billion R2 billion R100 million R3 billion R1 billion The management of the company wants to initiate a general share buyback in order to repurchase as many shares as possible in the open market with R1 billion of its retained earnings. Each share would be purchased for R110 in the open market. The company currently has 100 million shares outstanding of which the management and original owners together own 41%, of which none will be bought in the process. Required: Evaluate the decision to repurchase shares. Provide a brief report on how the repurchase will affect the control (current and potential future) of the company as well as its profitability (ROE and EPS) and future financing opportunities. Ignore any tax implications