Question [5] (a) Discuss the use of a Rights Issue to raise equity finance. (11 marks) Lakeside plc. has 40 million, 0.10 ordinary shares in issue. On 7 June, the stock market closing price of the shares was 1.20. Early on the morning of 8 June, the business publicly announced that it had just secured a new contract to install electric vehicle charging facilities on main roads in England and Scotland. To the business, the contract had a net present value of 8 million. On 9 June, the business announced its intention to raise the necessary money to finance the work, totalling 20 million, through a rights issue priced at 0.80 per share. (b) At what price should a shareholder expect to sell the right to buy one of the new shares (8.11 marks) A modular building provider, Checkpoint Cabins, has a number of fixed period loans to provide finance to undertake projects: Loan 1 50,000 @ 7%pa Loan 2 150,000 @ 9%pa Loan 3 200,000 @ 4%pa (c) Calculate the average percentage cost of the loans. (8.11 marks) The company has potential new work in Ireland where the project return is estimated at 6%. To fund this work a further loan of 200,000 at 4.25% is required d) Discuss why the company can expect to profitably proceed with the opportunity (6.11 marks) Total (33.33] marks 5% Present Value Table Present value of 1 in *w* years at discount rate, r. Discount rate (1) Years (n) 1% 2% 4% 6% 8% 9% 10% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 4 0.961 0.924 0.888 0.855 0.823 0792 0.763 0.735 0.708 0.683 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 1 N 3 4 5 6 6 7 8 7 0.942 0.933 0.923 0.914 0.905 0.888 0.871 0.853 0.837 0.820 0.837 0.790 0.746 0.813 0.760 0.711 0.789 0.731 0.677 0.766 0.703 0.645 0.744 0.676 0.614 0.705 0.666 0.630 0.596 0.564 0.665 0.623 0.583 0.547 0.513 0.627 0.582 0.540 0.502 0.467 0.592 0.544 0.500 0.460 0.424 0.558 0.508 0.463 0.422 0.386 8 9 10 10 11 11 12 0.896 0.887 0.879 0.870 0.861 13 0.804 0.788 0.773 0.758 0.743 0.722 0.701 0.681 0.661 0.642 0.650 0.625 0.601 0.577 0.555 0.585 0.527 0.475 0.429 0.388 0.350 0.557 0.497 0.444 0.397 0.356 0.319 0.530 0.469 0.415 0.368 0.326 0.290 0.505 0.442 0.388 0.340 0.299 0.263 0.481 0.417 0.362 0.315 0.275 0.239 12 13 14 14 15 15 Years (n) 1 2 3 1 2. 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 UN 4 0.507 6 7 0.535 482 0.434 0.391 0.352 7 B 9 10 0.480 0.425 0.376 0.333 0.295 0.452 0.404 0.361 0.322 0.456 0.400 0.351 0.308 0.270 8 0.432 0.410 0.390 0.370 0.352 0.335 0.376 0.354 0.333 0.314 0.296 0.279 0.327 0.305 0.285 0.266 0.249 0.233 0.284 0.263 0.243 0.225 0.209 0.194 0.247 0.227 0.208 0.191 0.176 0.162 9 10 11 12 13 11 12 0.317 0.286 0.258 0.232 0.209 0.287 0.257 0.229 0.205 0.183 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 13 14 14 15 15 Annuity Table Present value of 1 receivable at the end of each year for "w" years at discount rate,r. Discount rate() Years (n) 1% 2% 3% 5% 6% 7% 8% 9% 10% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 5 4.853 4.713 4.580 4,452 4.329 4212 4.100 3.993 3.890 3.791 1 2 3 4 6 7 6 7 8 9 10 5.795 5.601 5.417 5.242 5.076 6.728 6.472 6.230 6.002 5.786 7.652 7.325 7.020 6.733 6.463 8.566 8.162 7.786 7.435 7.108 9.471 8.983 8.530 8.111 7.722 4.917 5.582 6.210 6.802 7.360 4.767 5.389 5.971 6.515 7.024 4.623 5.206 5.747 6.247 6.710 4.486 4.355 5.033 4.868 5.535 5.335 5.995 5.759 6.418 6.145 8 9 10 11 11 12 10.37 9.787 9.253 11.26 10.58 9.954 12.13 11.35 10.63 13.00 12.11 11.30 13.87 12.85 11.94 13 8.760 8.306 9.385 8.863 9.986 9.394 10.56 9.899 11.12 10.38 7.887 8.384 8.853 9.295 9.712 7.499 7.943 8.358 8.745 9.108 7.139 6.805 6.495 7.536 7.161 6.814 7.904 7.487 7.103 8.244 7.786 7.367 8.559 8.061 7.606 12 13 14 15 15 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Years (n) 1 2 3 1 2 0.901 0.893 0.885 0.877 0.870 1.713 1.690 1.668 1.647 1.626 2.444 2.402 2.361 2.322 2.283 3.102 3.037 2.974 2.914 2.855 3.696 3.605 3.517 3.433 3.352 0.862 1.605 2.246 2.798 3.274 0.855 1.585 2.210 2.743 3.199 0.847 1.566 2.174 2.690 3.127 0.840 1.547 2.140 2.639 3.058 0.833 1.528 2.106 2.589 2.991 4 5 5 6 7 8 9 10 4.231 4.111 3.998 3.889 3.784 4.712 4.564 4.423 4.288 4.160 5.146 4.968 4.799 4.639 4.487 5.537 5.328 5.132 4.946 4.772 5.889 5.650 5.426 5.216 5.019 3.685 4.039 4.344 4.607 4.833 3.589 3.922 4.207 4.451 4.659 3.498 3.410 3.326 3.812 3.706 3.605 4.078 3.954 3.837 4.303 4.163 4.031 4.494 4.339 4.192 10 11 12 13 14 15 6.207 5.938 5.687 5.453 5.234 6.492 6.194 5.918 5.660 5.421 6.750 6.424 6.122 5.842 5.583 6.982 6.628 6.302 6.002 5.724 7.191 6.811 6.462 6.142 5.847 5.029 5.197 5.342 5.468 5.575 4.836 4.988 5.118 5.229 5.324 4.656 4.793 4.910 5.008 5.092 4.486 4.611 4.715 4.802 4.876 4.327 4.439 4.533 4.611 4.675 11 12 13 14 15 Question [5] (a) Discuss the use of a Rights Issue to raise equity finance. (11 marks) Lakeside plc. has 40 million, 0.10 ordinary shares in issue. On 7 June, the stock market closing price of the shares was 1.20. Early on the morning of 8 June, the business publicly announced that it had just secured a new contract to install electric vehicle charging facilities on main roads in England and Scotland. To the business, the contract had a net present value of 8 million. On 9 June, the business announced its intention to raise the necessary money to finance the work, totalling 20 million, through a rights issue priced at 0.80 per share. (b) At what price should a shareholder expect to sell the right to buy one of the new shares (8.11 marks) A modular building provider, Checkpoint Cabins, has a number of fixed period loans to provide finance to undertake projects: Loan 1 50,000 @ 7%pa Loan 2 150,000 @ 9%pa Loan 3 200,000 @ 4%pa (c) Calculate the average percentage cost of the loans. (8.11 marks) The company has potential new work in Ireland where the project return is estimated at 6%. To fund this work a further loan of 200,000 at 4.25% is required d) Discuss why the company can expect to profitably proceed with the opportunity (6.11 marks) Total (33.33] marks 5% Present Value Table Present value of 1 in *w* years at discount rate, r. Discount rate (1) Years (n) 1% 2% 4% 6% 8% 9% 10% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 4 0.961 0.924 0.888 0.855 0.823 0792 0.763 0.735 0.708 0.683 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 1 N 3 4 5 6 6 7 8 7 0.942 0.933 0.923 0.914 0.905 0.888 0.871 0.853 0.837 0.820 0.837 0.790 0.746 0.813 0.760 0.711 0.789 0.731 0.677 0.766 0.703 0.645 0.744 0.676 0.614 0.705 0.666 0.630 0.596 0.564 0.665 0.623 0.583 0.547 0.513 0.627 0.582 0.540 0.502 0.467 0.592 0.544 0.500 0.460 0.424 0.558 0.508 0.463 0.422 0.386 8 9 10 10 11 11 12 0.896 0.887 0.879 0.870 0.861 13 0.804 0.788 0.773 0.758 0.743 0.722 0.701 0.681 0.661 0.642 0.650 0.625 0.601 0.577 0.555 0.585 0.527 0.475 0.429 0.388 0.350 0.557 0.497 0.444 0.397 0.356 0.319 0.530 0.469 0.415 0.368 0.326 0.290 0.505 0.442 0.388 0.340 0.299 0.263 0.481 0.417 0.362 0.315 0.275 0.239 12 13 14 14 15 15 Years (n) 1 2 3 1 2. 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 UN 4 0.507 6 7 0.535 482 0.434 0.391 0.352 7 B 9 10 0.480 0.425 0.376 0.333 0.295 0.452 0.404 0.361 0.322 0.456 0.400 0.351 0.308 0.270 8 0.432 0.410 0.390 0.370 0.352 0.335 0.376 0.354 0.333 0.314 0.296 0.279 0.327 0.305 0.285 0.266 0.249 0.233 0.284 0.263 0.243 0.225 0.209 0.194 0.247 0.227 0.208 0.191 0.176 0.162 9 10 11 12 13 11 12 0.317 0.286 0.258 0.232 0.209 0.287 0.257 0.229 0.205 0.183 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 13 14 14 15 15 Annuity Table Present value of 1 receivable at the end of each year for "w" years at discount rate,r. Discount rate() Years (n) 1% 2% 3% 5% 6% 7% 8% 9% 10% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 5 4.853 4.713 4.580 4,452 4.329 4212 4.100 3.993 3.890 3.791 1 2 3 4 6 7 6 7 8 9 10 5.795 5.601 5.417 5.242 5.076 6.728 6.472 6.230 6.002 5.786 7.652 7.325 7.020 6.733 6.463 8.566 8.162 7.786 7.435 7.108 9.471 8.983 8.530 8.111 7.722 4.917 5.582 6.210 6.802 7.360 4.767 5.389 5.971 6.515 7.024 4.623 5.206 5.747 6.247 6.710 4.486 4.355 5.033 4.868 5.535 5.335 5.995 5.759 6.418 6.145 8 9 10 11 11 12 10.37 9.787 9.253 11.26 10.58 9.954 12.13 11.35 10.63 13.00 12.11 11.30 13.87 12.85 11.94 13 8.760 8.306 9.385 8.863 9.986 9.394 10.56 9.899 11.12 10.38 7.887 8.384 8.853 9.295 9.712 7.499 7.943 8.358 8.745 9.108 7.139 6.805 6.495 7.536 7.161 6.814 7.904 7.487 7.103 8.244 7.786 7.367 8.559 8.061 7.606 12 13 14 15 15 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Years (n) 1 2 3 1 2 0.901 0.893 0.885 0.877 0.870 1.713 1.690 1.668 1.647 1.626 2.444 2.402 2.361 2.322 2.283 3.102 3.037 2.974 2.914 2.855 3.696 3.605 3.517 3.433 3.352 0.862 1.605 2.246 2.798 3.274 0.855 1.585 2.210 2.743 3.199 0.847 1.566 2.174 2.690 3.127 0.840 1.547 2.140 2.639 3.058 0.833 1.528 2.106 2.589 2.991 4 5 5 6 7 8 9 10 4.231 4.111 3.998 3.889 3.784 4.712 4.564 4.423 4.288 4.160 5.146 4.968 4.799 4.639 4.487 5.537 5.328 5.132 4.946 4.772 5.889 5.650 5.426 5.216 5.019 3.685 4.039 4.344 4.607 4.833 3.589 3.922 4.207 4.451 4.659 3.498 3.410 3.326 3.812 3.706 3.605 4.078 3.954 3.837 4.303 4.163 4.031 4.494 4.339 4.192 10 11 12 13 14 15 6.207 5.938 5.687 5.453 5.234 6.492 6.194 5.918 5.660 5.421 6.750 6.424 6.122 5.842 5.583 6.982 6.628 6.302 6.002 5.724 7.191 6.811 6.462 6.142 5.847 5.029 5.197 5.342 5.468 5.575 4.836 4.988 5.118 5.229 5.324 4.656 4.793 4.910 5.008 5.092 4.486 4.611 4.715 4.802 4.876 4.327 4.439 4.533 4.611 4.675 11 12 13 14 15