Calculate price per share required in a new public issue

Assignment Help Finance Basics
Reference no: EM1388679

Q The issued capital of Indiana Ltd.comprises of 100,000 ordinary shares of Rs. 100 each. It has no fixed interest capital. It has paid a dividend of Rs. 30 per share consistently over years and each share has a current market value of Rs. 270 cum dividend. The next dividend is due to be paid shortly. Earnings have been running at about the same level as dividends.

The directors are now considering a new investment proposal, requiring an outlay of Rs. 20,00,000, which is expected to yield a net cash inflow of Rs. 4,00,000 p.a. indefinitely. All additional net cash receipts could be used to increase dividend payments. Three sources of finance for the new project are under consideration:

(a)

A reduction in the current dividend.

(b)

A rights issue of one new share for every ten shares held, at Rs. 200 per share;and

(c)

A new public issue of ordinary shares.

Assume that the broad details of the directors' plan become known in the stock market (but were not known when the share price was Rs. 270).

Estimate the new price per share:

(a)

If the current dividend is reduced; and

(b)

If the rights issue are made

Calculate the price per share required in a new public issue if the entire surplus generated by the new project is to accrue to the existing shareholders.

Reference no: EM1388679

Questions Cloud

Concept of ethical relativism : Discuss the concept of ethical relativism. What are the inherent dangers in ethical relativism? How does elitism impact our perceptions and our actions as professionals in public health? How can we mitigate against elitism?
Op-codes-add microcode to overlapping address ranges : Bmov a,b,n. This Block Move instruction moves n bytes of data from location a in memory to location b. Deal correctly with case of overlapping address ranges.
Histograms of some sampling distributions : The histograms of some sampling distributions are symmetrical. T-F What would make a histogram symmetrical, and give an example of a symmetrical distribution? A random sample of size 36 is to be selected from a population that has a mean μ = 50 an..
Discuss the business entity that represents the best choice : discuss the business entity that represents the best choice for each business, taking control, taxation, and liability issues into consideration. Identify laws
Calculate price per share required in a new public issue : Calculate the price per share required in a new public issue if the entire surplus generated by the new project is to accrue to the existing shareholders.
Illustrate what are advantage and disadvantage of resource : Illustrate what are the advantage and disadvantage of resource based approach versus the goal approach for measuring organisational effectiveness
Illustrate what ways might the cognitive affective : illustrate what ways might the cognitive and affective components of attitude influence the behaviour of employees who are faced with learning an entirely new set of computer-related skills to retain their jobs at a manufacturing facility?"
Data on epidemiology : In brief describe the effects of the following on atherosclerosis. Be sure to include some data on the epidemiology (statistics on the effects of the substance) and the molecular effect or actions:
Describe the trade-off among technical capability : Describe the trade-off among technical capability and commercial prowess in launching a new product/service.

Reviews

Write a Review

Finance Basics Questions & Answers

  Computation on selection of portfolio

Computation on selection of Portfolio and A portfolio manager has been asked to construct and manage a portfolio with a capital appreciation objective

  Determine length of the inventory period

The Corner Market has sales of 898,000 and a cost of goods sold equal to 70 percent of sales. The beginning inventory is 64,000 and the ending inventory is 71,000.

  Calculation of rate of return using pure expectations theory

Calculation of Rate of Return using Pure Expectations Theory and calculation of real risk-free rate of return

  American pizza acquisitions and mergers

American Pizza, a national pizza chain, is considering purchasing a smaller chain, Eastern Pizza. American's analysts project that the merger will result in incremental net cash flows of $2 million in Year

  Explain analysis of the financial statements with comparison

Explain Analysis of the financial statements with comparison of industry averages and prepare a columnar report for the controller of Heartland Inc

  Determination of wacc

Mullineaux Company has a target capital structure of 60 percent common stock, 5% preferred stock, and 35% debt. Its cost of equity is 14 percent, the cost of preferred stock is 6%.

  Cost of preferred stock, cost of equity

Calculate the next expected dividend per share, D1. (D0=0.4($6.50)=$2.60.) Assume that the past growth rate will continue.

  Euro value against the dollar

Suppose that many European countries that use the euro as their currency experience higher inflation than the US, while 2 other European countries that use the euro as their currency experience lower inflation than US.

  Show the pre-tax earnings, taxes paid and earnings after tax

Suppose you want to compare the earnings from two different legal forms for a company, Corporate and Proprietor. Your pre-tax income is $500,000 in both. However there is a difference in the taxes you pay.

  Walden acquisition-able corporation

Able corp. is a power tool company with critical issues. They've no knowledge of their market share, the size of the market nor the dynamics that drive the market in their line of business.

  Opportunity costs and deferred annuity

Les Moore retired as president of Goodman Snack Foods Company-Supposing Mr. Moore will not retire for two more years and will not start to receive his ten payments till the end of the third year, what would be the value of his deferred annuity?

  Statements of cash flows

Pick three companies from different industries and situate their statements of cash flows for the most recent year.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd