Question $1$

Wilson plc generates profit after tax of $15$ per cent on shareholders' funds. Its current capital structure is as follows:

Ordinary shares of $50$c each

$200000$

Reserves

${600000}^{400000}$

The board of Wilson plc wishes to raise $160000$ from a rights issue in order to expand existing operations. Its return on shareholders' funds will be unchanged. The current ex$-$dividend market price of Wilson plc is $1\mathrm{.}90.$ Three different rights issue prices have been suggested by the finance director: $1\mathrm{.}80,1\mathrm{.}60$ and $1\mathrm{.}40.$ Determine the number of shares to be issued, the theoretical ex$-$rights price, the expected earnings per share and the form of the issue for each rights issue price. Comment on your results.

Question $2$

Mason plc$,$ which pays corporate tax at $30$ per cent, has the following capital structure:

Ordinary shares: $1000000$ ordinary shares of nominal value $25$ p per share. The market value of the shares is $79$ p per share. A dividend of $5$ p per share has just been paid and dividends are expected to grow by $5$ per cent per year for the foreseeable future.

Preference shares: $250000$ preference shares of nominal value $50$ p per share. The market value of the shares is $42$ p per share and the annual net dividend of $7\mathrm{.}5$ per cent has just been paid.

Bonds: $100000$ of $7$ per cent irredeemable bonds with a market price of $102$ per $100$ par.

The annual interest payment has just been made. Calculate the weighted average after$-$tax cost of capital of Mason plc$.$