Scenario

The directors of Mega Ltd are considering increasing capital. The directors are considering whether to raise capital via public issues, right issues, accelerated right issues or placing new shares with a group of new investors. Some directors argue that the placement of shares is a better option over public issues. Some other directors argue that there is no difference between 'accelerated right issue and placement of shares' and 'right issue and public issue'. As the junior accountant of Mega Ltd$,$ you have been asked to prepare a memorandum report to the CEO of Mega Ltd$-$ Ms Aroha Benton addressing the following.

Required

a$)$ Explain your opinions on the directors' argument that "there are no differences between accelerated right issue and placement of shares and right issue and public issue". In your explanations also provide the definitions$/$meanings of these four capital raising options. $(40$ marks$)$

b$)$ Critically evaluate why Mega Ltd should choose a placement of shares over an issue of shares to the public. $(30$ marks$)$

Note: Each question should be answered under a sub$-$heading within the report with appropriately cited references. Further, your discussion should reference relevant professional$/$academic authorities and accounting standards $($where necessary$).$

Marking Guide$/$Schedule

Report:

Marks Totals

Presentation $$ Report format$/$neatness$/$abbreviations$/$readability $10$

Structure $$ Introduction$/$Discussion$/$Conclusion $10$

Logical communication of ideas irrespective of actual content $1030$ Discussion$/$Content:

Definition$/$meaning of the capital raising terms$($a$)20$

Discussion of opinions on the four capital raising options $($a$)20$

Critical evaluation of why placement of shares is better than a $30$ public issue $($b$)$