QUESTION 3 Total (20 marks) MMB Zambia Lta is a medium sizod company in the manufiacturing industry The company is considering an investment of K10m. ht has two aptions of financing this investrient. One would be to bortow froen the bank for two years at tow per annum. The othar would be by means of a 1 for 4 rights isste. The finance ditector who is tesponsible tor poth tinancial controt and treasury tunetions is concerned with the company's level at financial gearing. Indusiny averane gearing (prior charge capitalitotal capital empioyed) is currently 50%. He has asked you to review the company's most recent financial statements. Required: Write a report to the finance director that includes the following: a) A discussion of the main issues to consider when determining the capital structure of the company. (10 marks) b) Calculation of the financial gearing ratio under each of the three scenarios provided below: (i)Thecompanydoesnottakeuptheinvestment.(ii)Thecompanyfinancestheinvestmentbymeansofborrowing.(3marks)(2marks) (iii) The company finances the investment by means of the rights issue. (2 marks) c) A recommendation for the company of a proposed course of action based on your calculations. (3 marks) Total ( 20 marks) This problem has been solved! QUESTION 3 Total (20 marks) MMB Zambia Lta is a medium sizod company in the manufiacturing industry The company is considering an investment of K10m. ht has two aptions of financing this investrient. One would be to bortow froen the bank for two years at tow per annum. The othar would be by means of a 1 for 4 rights isste. The finance ditector who is tesponsible tor poth tinancial controt and treasury tunetions is concerned with the company's level at financial gearing. Indusiny averane gearing (prior charge capitalitotal capital empioyed) is currently 50%. He has asked you to review the company's most recent financial statements. Required: Write a report to the finance director that includes the following: a) A discussion of the main issues to consider when determining the capital structure of the company. (10 marks) b) Calculation of the financial gearing ratio under each of the three scenarios provided below: (i)Thecompanydoesnottakeuptheinvestment.(ii)Thecompanyfinancestheinvestmentbymeansofborrowing.(3marks)(2marks) (iii) The company finances the investment by means of the rights issue. (2 marks) c) A recommendation for the company of a proposed course of action based on your calculations. (3 marks) Total ( 20 marks) This problem has been solved