INSTRUCTION: Answer all questions

Case Study

Access Enterprise Limited is a private company and has been in operation for over five years. The company was very profitable, however it was struggling to meet the high demand for its products. The company Directors called a strategic planning meeting to deal with the firms inability to meet the overwhelming demand for its product and to consider options available to raise new capital. The Finance Director, Mr. Anthony Newman told the meeting that the firm was having working capital problems due to the fast space of growth the firm experienced since its inception. He further stated that new equipment and a large warehouse facility were needed to resolve the problem the firm was facing. The Finance Director told the meeting that the firm need to raise additional capital of $120mto put a dent in the unfulfilled demand from customers. The company was listed on the JSE Junior Market and Five year after it was listed the company decided to diversify into another industry and require new capital of $250m. At the end of 2016(the end of the firm accounting period) the firm equity capital was $4m and the par value of the shares was $0.40.

At the end of 2017, the market capitalization of the company was $150m and the net profit at that date was $45m. The Board of Directors declared a dividend of $10m and it was paid at year end.

There was a 4 for 2 right issue of shares at the companys financial year end of 2017 and the price for the right issue was $2.00 per share.

Having successfully expended and diversify the business, the firm accumulated surplus cash of $450m over a four year period. On February 1 2017 The Finance Director invested the surplus cash in fixed income investment in the following ratio: 5:4:6:5 money market, treasury bills, corporate paper and CDrespectively. The surplus funds were invested as follows:

Money market fund interest rate was 9 percent per annum and investment period was 6 months.

Treasury bills interest rate was 5 percent per annum and the investment period was one year.

Corporate paper was invested at 10 percent per annum and the investment period was for 9 months.

A Special CDs at 7 per cent per annum and the investment period was for one year.

On June 30, 2016 an investor purchased three million shares in the company when the market price of the share was $10 each.

Required:

a. What are the benefits to be obtained for listing on the JSE Junior Market? ( 15 marks)

b. Advice the Directors of Access Business Enterprise Limited how the capital market can help the firm raised the $250m in new financing? (20 marks)

c. Calculate the companys market price of the shares at the end of the financial year 2017? (5 marks)

d. What is the dividend payout ratio at the end of the financial year 2017? (5 marks)

e. Calculate the investment income on the fixed income instruments and list four benefits of fixed income investment? (20 marks)

f. Calculate the shareholding of the investor who purchase the large block of share on June 30, 2016 and list the benefits to be derived from such an acquisition? (15 marks)

g. Calculate the number of shares to be issued from the rights issue and the amount of capital to be raised? (8 marks)

h. Calculate the earnings per share for the company at the end of 2017? (4 marks)

i. Calculate the sale proceeds for the sale of the three million shares and explain the rights of the investor who purchased the shares? (8 marks)