QUESTION ONE

Namanje Limited is a Zambian manufacturer of chairs made from the famous

Mukula tree. Namanje Limited has decided to purchase an existing Botswana

based company called CityFurniture which makes reclining chairs. The purchase consideration consists of 72,000,000 for non-current assets and equipment of CityFurniture. It has also been estimated that an addition 8,000,000 of working capital will be needed.

It is expected that the financing of CityFurniture will not need any additional external funds for at least five years. Furthermore, turnover from the CityFurniture would be exclusively from the local Tswana market. Namanje Limited has no other subsidiaries outside Zambia and the company's board are considering how to finance the Tswana investment.

Zed International Commercial Bank, the principle bankers of Namanje Limited has offered professional counsel that, taking into account Namanje Limited's credit rating, the following alternatives might be possible, with finance available up to the amount shown:

Part 1

> A one for four rights issue, at a price of K2.8 per share. Underwriting and

other costs are expected to be 5% of the gross amount raised.

>Five-year Zambian Kwacha 7% fixed rate secured bank term loan of up to

K50, 000,000, initial arrangement fee 1%.

Part 2

>15, 000,000 one-year commercial paper, issued at TSWANA SADCMPC

plus 1.5%. This could be renewed on an annual basis. An additional 0.5%

per year would be payable to a Botswana bank for a back-up line of credit.

> R80, 000,000 South African Rands five-year fixed rate secured bank loan

at 2.5%. This may be swapped into fixed rate (Botswana Pula) at an

additional annual interest rate of 2.3%. An upfront fee of 3.0% is also

payable.

Part 3

> K42, 000,000 10-year kwacha Eurobond issue at 6.85%. This may be

swapped into at an annual interest rate of 4.95%. Eurobond issue costs

of 2%, and upfront swap costs of 1.7% would also be payable.

> 40,000,000 floating rate six-year secured term loan from a Tswana bank,

at TSWANA SADCMPC plus 3%.

No currency swaps are available other than those shown. Currency swaps would involve swapping the principal at the current spot exchange rate, with the reversal of the swap at the same rate at the swap maturity date.

TSWANA SADCMPC is currently 3%. SADCMPC is the rate at which Banks

based in the Southern African Development Community lend and borrow to one another short term funds. The average prevailing exchange rates are as shown below:

Bid Ask

S(ZMW/BWP) = 1.7985 1.8008

S(ZMW/ZAR) = 2.256 2.2298

F360(ZMW/BWP) = 1.7726 1.7746

F360(ZMW/ZAR) =2.1892.205