Reference no: EM132820675
Respond to all the case studies below to score full marksQ1.
Case study ONE:
TNT Ltd has a paid up share capital of 1.2 million shares of Sh.20 each. The current market price per share is Sh.36. The company has no loan capital. Maintainable earnings before tax are forecast at Sh.4.8 million. The company?s effective tax rate is 40%. The company requires to raise a further Sh.15 million in order to achieve additional earnings of Sh.2.2 million per year and proposes doing this by means of a rights issue. Suggested alternative prices for the rights issue are Sh.32 and Sh.25 per share.
Question 1
Calculate, when the price is Sh.32 per share, the theoretical market price per share of the enlarged capital after the issue (the ex-rights price) and also the market value of a right.
Q2. CASE STUDY TWO
Daegu Construction Company Ltd made a Sh.100 million bondage 5 years ago when interest rates were substantially high. The interest rates have now fallen and the firm wishes to retire this old debt and replace it with a new and cheaper one. Given here
below are the details about the two bond issues: Old Bonds: The outstanding bonds have a nominal value of Sh.1,000 and 24%
coupon interest rate. They were issued 5 years ago with a 15-year maturity. They were initially sold a their nominal value of Sh.1,000 and the firm incurred Sh.390,000 in floatation costs. They are callable at Sh.1,120. New Bonds: The new bonds would have a Sh.1,000 nominal value and a 20% coupon interest rate. They would have a 10-year maturity and could be sold at their par value.
The issuance cost of the new bonds would be Sh.525,000. Assume the firm does not expect to have any overlapping interest and is in the 35% tax bracket.
Question ONE
Calculate the after-tax cash inflows expected from the an-amortized portion of the old bond's issuance cost.
Q3. Discuss the main features of:
(i) Corporate share repurchases (buy-backs); and
(ii) Share (stock) splits;
and why companies might use them. Include in your discussion comment on the possible effects on share price of share repurchases and share (stock) splits in comparison to the payment of dividends.
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What additional assessment information would you collect
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Calculate the eps at the end of the accounting year
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Determine the carrying amount of the remaining bonds
: On January 1, 2021, Wonder Co. issued P20,000,000, 9%, 10-year bonds for P16,609,866.18. Determine the carrying amount of the remaining bonds
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Calculate the after-tax cash inflows
: TNT Ltd has a paid up share capital of 1.2 million shares of Sh.20 each. The current market price per share is Sh.36. The company has no loan capital.
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Compute pension expense for the year
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