Transformation limited is one of the largest to manufacturing companies in the country. the company requires significant funding to expand its operation. management have been torn between whether to issue new shares or obtain a loan. the option are as follows:

issue 100 00 ordinary shares which will be issued at R10 per share or

obtain a loan from a bank of R1 000.000 at 15% per annum

the following information relates to the current reporting period before any of the above information is taken into account

profit attributable to shareholders R1.200 000

shareholder funds R 2 800 000

number of ordinary shares issued 100 000 at R10 per share

Using the shareholder profitability ratio evaluate both options available compare them to the current structure an advise management as to which option will be best.

Answer rating: 100% (QA)

EVALUATION OF OPTIONS PARTICULAR DEBT FINANCING EQUITY FINANCING Current profit 1200000 1200000 ... View the full answer