Workshop 1 Capital Budgeting

1. a) Describe in detail the different sources of equity financing for private firms. Which one is preferable? Why? (20 marks)
3. b) Mancunian Industries sold 10 million shares of stock in an SEO. The market price of Mancunian at the time was 25 per share. Of the 10 million shares sold, 6 million shares were primary shares being sold by the company, and the remaining 4 million shares were being sold by venture capitalists. Mancunian's underwriters charge 5% of the gross proceeds as an underwriting fee.
   2. (i)How much money did Mancunian Industries raise? (5 marks)
   4. (ii)How much money did the venture capitalists receive? (5 marks)
   6. (iii)MancunianIndustriesoriginallyhad100millionsharesofstockoutstandingatapriceof25pershare.WhatifthecompanyexecutiveshadannouncedarightsissueinsteadofanSEO?Howmuchmoneywouldtheybeabletoraise? (5 Marka)
   8. Detailsoftherightissue:Everyexistingshareholderwillbesentonerightpershareofstockthatheorsheowns.Thecompanyplanstorequiretwentyrightstopurchaseoneshareatapriceof20pershare.
   10. (TOTAL35marks)