1. Your company, Living Planet plc, was formed in 1985 to develop technologies that combat climate change. You started the firm with £80,000 financing which consisted of 3,000 shares of equity amounting to £60,000 and a £20,000 bank loan. The company is listed on the small companies exchange and has accumulated earnings of £120,000. The share price is £7.50. You plan to expand the firm into solar technologies and have agreed to issue 1,000 new shares to a local investor. Construct the equity statement for your company before and after the share issue. The statement must include the total par value, additional paid-in capital, and book value per share. (40 marks)
2. You are concerned that possibly other forms of financing may be more appropriate and in particular you have heard about hybrid securities. Explain what these are and why companies use them. (30 marks)
3. If a company was to go into liquidation, which claims would have higher priority: bonds or equity? Why? How would you deal with hybrid securities in liquidation? (30 marks)