Barnaby’s Fatburner Gyms Ltd operates a chain of exercise facilities throughout Victoria and New South Wales. The firm is considering offering share dividends to its

shareholders either via share bonus issue or share split. The firm currently has 8 million shares outstanding, which have a current market price of $12. If all else remains

constant, what will be the price of Barnaby’s shares after each of the following scenarios:

a. A 20% bonus share issue

b. A 32.5% bonus share issue

c. A 4 for 1 share split

d. What would be the total number of shares outstanding after (a), (b) and (c)?

2. Green Curry Kitchen operates two restaurants in Hobart and Launceston, Tasmania,

and has the following financial structure:

Account payables $100,000
Short-term debt $400,00
Current liabilities $ 500,00
Long-term debt $2,000,000
owner's equity $1,500,000
Total $4,000,000

The firm is considering an expansion that would involve raising an additional $2 million.

a. What are the firm’s debt ratio and debt-to-equity ratio in its present capital structure?

b. If the firm wants to have a debt ratio of 50%, how much equity does it need to raise in order to finance the expansion?

Answer rating: 100% (QA)

a To calculate the price of Barnabys shares after a bonus share issue we need to consider the additional shares issued and their impact on the market ... View the full answer