Please answer the question 1-14 and give the specific working. Thank you.
Seminar Class Sheets will charge TRHMP an 6% spread. if you currently own 5,000 shares of stock in the company and decude not to participate in the rights offering, how much money can you get by selling your rights? 11. Honeybunny plc needs to raise 12m to finance an expansion into new markets. A general cash offering of new shares of equity will be undertaken to raise the requured funds. If the offer price is 22 per share and the company's undenrvriters charge an 8% spread, how many shares need to be sold? 12. Pumpkin plc has recently gone public. Under a firm commitment agreement Pumpkin receives 14 for each one of the 1.5 million shares sold. The initial offering price was 15 per share, and the stock price rose to 17 per share in the first few minutes of trading. Pumpkin paid 250,000 in direct legal and other costs, and 100,000 in indirect costs. What was the flotation cost as a percentage of funds raised? 13. Flock of Seagulls Inc. has 100,000 shares of stock outstanding. Each share is worth $75, so the company's market value of equity is $7,500,000. Suppose the firm decides to issue 25,000 new shares and considers the following offering prices: $75, $50, and $25. What will the effect be of each of these alternative offering prices on the existing price per share? 14. Read Articles 19 and 20 and the associated discussion in Boakes (p.109). According to Article 20, "Hargreaves Lansdown shares opened at 160p and rose to close at 2091/2p, adding 232.4 m in value..." Think about the following points and come prepared to discuss them in the seminar: a. Why might the shares have risen in value so much on the first day? b. How does this rise in price reflect on the indicative pricing range of 140-160p? c. What kind of cost does this rise in price represent?Sheet Six Prior to the class all students should prepare answers to the following questions: 1. Explain why the ost of capital and required return may be regarded as "two sides of the same coin . 2. Cunningham and Reilly Crane Hire plc has common stock with an. ex dividend market price of O.7O per share and a constant expected annual dIVldend growth rate of 5%. A dividend of O.1O per share has just been paid. Calculate C & Rs cost of equity capital. 3. Steyn & Nel plc has preferred stock trading at 65. The annual dividend on the preferred stock is 2.80 per share. What is the cost of Steyn & Nel's preferred stock? 4. Manic Sweet Peaches plc has 500,000 shares of common stock outstanding and 50,000 bonds outstanding. The stock is trading at 7.50 per share and the cost of equity is 12%. The face value of a bond is 100 and the debt is selling at 110% of par with a yield to maturity of 9%. The rate of corporation tax is 31%. Calculate MSP's WACC. fix 5. Gausden & Bennison Ltd. need to raise 7.5 million to start a new project. The company has a target capital structure of 60 % common stock, 10 % preferred ,;/'-*stock,xandx30% debt. Flotation costs for issuing new stock are 15%, for new preferred stock,{%, and for new debt, 4%. What is the true initial cost figure G&B should use when evaluating its project? / 6. The Rock Bottom P$Company Limited are considering opening a new 'super- pub' in Thornaby. The cost of the project will be 700,000 and it is expected to generate net cash flows of 120,000 per year in perpetuity. The company has a target debt/equity ratio of 1, a flotation cost of debt of 6%, a flotation cost of equity of 12%, a yield-to-maturity of 9% and a required return on equity of 15%. The rate of corporate taxation is 30%. Should the firm proceed with the project? 7. Under what circumstances is the WACC an appropriate measure of the discount rate for a project? Are these circumstances likely to hold in practice? 8. Ordinary shares of Jack Rabbit Slim Ltd. are currently quoted at 23 each. JRS announce a rights issue where each existing shareholder is given the right to purchase one share at 1.75 for each five shares held. Mr Wallace currently holds 10,000 shares in JRS. a. How many shares is Mr Wallace entitled to buy at the new price? b. What is the ex-rights share price? c. Assuming he exercises his rights, what is the total value @ Ms shareholding? d. What is one right worth? e. Mr Vega, who holds 1,000 shares, does not exercise hislirgni 4 holding now worth? ME" 9. Explain how a rights issue differs from a general cash offer. 10. Tony Rocky Horror Meat Pies plc wants to raise 2.35m via a GM aii'iriiil 'T'taiv company currently has 250,000 shares of common stock 0. , ' '. Tgui31=i3 mil is)! 30 per share. lts underwriter has set a subscription price am": my
