The Kudu gas field is an offshore gas field in Namibia approximately 170 kilometres (110 mi)...
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The Kudu gas field is an offshore gas field in Namibia approximately 170 kilometres (110 mi) north-west from the town of Oranjemund. It is located in the Orange Sub-basin in 170 metres (560 ft) of water. Kudu Gas Limited requires N$400 million to develop the new gas field north-west of Oranjemund. The company is listed in Namibia Stock Exchange and is currently trading at a price of N$30 per share. The company wishes to raise the required finance by making a rights issue to existing shareholders. The company's statement of financial position reflects a shareholders' equity of N$1 billion and the company currently has 800 million share in issue. Required: Explain why the maximum subscription price is N$30 per share. (4 marks) b) What could be an issue with setting a subscription price very close to the current listed price? (2 marks) c) Assume the company a subscription price of N$22 per share. How many shares will the company issue? (2 marks) d) Calculate the ex-rights price. (6 marks) e) Calculate the value of the right. (2 marks) f) Why should a shareholder sell his rights if unable to take up his rights. Show your workings to validate your answer. (6 marks) XYZ Ltd. is considering merger with ABC Ltd. XYZ Ltd.'s shares are currently traded at N$ 25. It has 200 000 shares outstanding and its profits after taxes (PAT) amount to N$ 400 000. ABC Ltd. Has 100 000 shares outstanding. Its current market price is N$12.50 and its PAT are N$100 000. The merger will be effected by means of a share swap (exchange). ABC Ltd. has agreed to a plan under which XYZ Ltd. will offer the current market value of ABC Ltd.'s shares. Required: (i) What is the pre-merger earnings per share (EPS) and P/E ratios of both the companies? (10 marks) (ii) If ABC Ltd.'s P/E ratio is 8, what is its current market price? What is the exchange ratio? What will XYZ Ltd.'s post-merger EPS be? (6 marks) (iii) What must the exchange ratio be for XYZ Ltd.'s that pre and post-merger EPS to be the same? (4 marks) The Kudu gas field is an offshore gas field in Namibia approximately 170 kilometres (110 mi) north-west from the town of Oranjemund. It is located in the Orange Sub-basin in 170 metres (560 ft) of water. Kudu Gas Limited requires N$400 million to develop the new gas field north-west of Oranjemund. The company is listed in Namibia Stock Exchange and is currently trading at a price of N$30 per share. The company wishes to raise the required finance by making a rights issue to existing shareholders. The company's statement of financial position reflects a shareholders' equity of N$1 billion and the company currently has 800 million share in issue. Required: Explain why the maximum subscription price is N$30 per share. (4 marks) b) What could be an issue with setting a subscription price very close to the current listed price? (2 marks) c) Assume the company a subscription price of N$22 per share. How many shares will the company issue? (2 marks) d) Calculate the ex-rights price. (6 marks) e) Calculate the value of the right. (2 marks) f) Why should a shareholder sell his rights if unable to take up his rights. Show your workings to validate your answer. (6 marks) XYZ Ltd. is considering merger with ABC Ltd. XYZ Ltd.'s shares are currently traded at N$ 25. It has 200 000 shares outstanding and its profits after taxes (PAT) amount to N$ 400 000. ABC Ltd. Has 100 000 shares outstanding. Its current market price is N$12.50 and its PAT are N$100 000. The merger will be effected by means of a share swap (exchange). ABC Ltd. has agreed to a plan under which XYZ Ltd. will offer the current market value of ABC Ltd.'s shares. Required: (i) What is the pre-merger earnings per share (EPS) and P/E ratios of both the companies? (10 marks) (ii) If ABC Ltd.'s P/E ratio is 8, what is its current market price? What is the exchange ratio? What will XYZ Ltd.'s post-merger EPS be? (6 marks) (iii) What must the exchange ratio be for XYZ Ltd.'s that pre and post-merger EPS to be the same? (4 marks)
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Answer rating: 100% (QA)
a The maximum subscription price for the rights issue is set at N30 per share because that is the current listed price of the companys shares Setting the subscription price at the current market price ... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb
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