$12.$ Case $(10\mathrm{.}3)$ Diamond Ltd$.$

Required:

a$)$ Treating separately each method of raising funds, calculate:

I. the total number of shares and

II$.$ the total par $($nominal$)$ value of debentures that have to be issued in order to raise the

funds required.

b$)$ Calculate the forecast earnings per share for the year to May $31,2011,$ assuming:

I. a rights issue of shares is made, and

II$.$ an issue of debentures is made to raise the necessary funds.

c$)$ Calculate the leverage ratio as at May $31,2011,$ assuming:

I. a rights issue of shares is made, and

II$.$ an issue of debentures is made.

d$)$ Discuss the major factors to be considered by Diamond Ltd$.$ when deciding between a rights

issue of shares and an issue of debentures to raise the necessary financing. Calculations

should be to the nearest thousand dollars.