Question 5 Star Game Plc is a big provider of animated games in the UK . The company is growing, and the top managers are proposing to expand the business and open new branches to meet the increasing demand. Thus, they are looking for ways to finance the company's expansion. The company's authorised share capital is 60 million shares, £3 each. The following is an extract from the statement of financial position of Star Game Plc as at 31 December 2021: £m Called up equity share capital, £3 each 90 Share premium account 30 Retained earnings 28 6% debentures 70 The fund required for the new expansion plan is estimated at £30 million. Star Game Plc managers are considering three options to finance this plan: ordinary share issue, issuing more debentures o using retained earnings. At the same time, they intend to maintain an acceptable debt ratio. Required: a) Critically evaluate the advantages and disadvantages of using each of the three finance options and advise Star Game Plc management on the best way to finance their expansion. Your answers should be linked to the details extracted from the statement of financial position above. b) If the company wants to make a rights issue of 3 share for every 9 shares held at £4.5 per share. Calculate the number and nominal value of the rights issue shares and the amount of money raised. c) What are the differences between a rights share issue and a new
Question 5 Star Game Plc is a big provider of animated games in the UK . The company is growing, and the top managers are proposing to expand the business and open new branches to meet the increasing demand. Thus, they are looking for ways to finance the company's expansion. The company's authorised share capital is 60 million shares, £3 each. The following is an extract from the statement of financial position of Star Game Plc as at 31 December 2021: £m Called up equity share capital, £3 each 90 Share premium account 30 Retained earnings 28 6% debentures 70 The fund required for the new expansion plan is estimated at £30 million. Star Game Plc managers are considering three options to finance this plan: ordinary share issue, issuing more debentures o using retained earnings. At the same time, they intend to maintain an acceptable debt ratio. Required: a) Critically evaluate the advantages and disadvantages of using each of the three finance options and advise Star Game Plc management on the best way to finance their expansion. Your answers should be linked to the details extracted from the statement of financial position above. b) If the company wants to make a rights issue of 3 share for every 9 shares held at £4.5 per share. Calculate the number and nominal value of the rights issue shares and the amount of money raised. c) What are the differences between a rights share issue and a new
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Question 5
Star Game Plc is a big provider of animated games in the UK . The
company is growing, and the top managers are proposing to expand
the business and open new branches to meet the increasing demand.
Thus, they are looking for ways to finance the company's expansion.
The company's authorised share capital is 60 million shares, £3 each.
The following is an extract from the statement of financial position
of Star Game Plc as at 31 December 2021:
£m
Called up equity share capital, £3 each 90
Share premium account
30
Retained earnings
28
6% debentures
70
The fund required for the new expansion plan is estimated at £30
million. Star Game Plc managers are considering three options to
finance this plan: ordinary share issue, issuing more debentures or
using retained earnings. At the same time, they intend to maintain an
acceptable debt ratio.
Required:
a) Critically evaluate the advantages and disadvantages of using
each of the three finance options and advise Star Game Plc
management on the best way to finance their expansion. Your
answers should be linked to the details extracted from the
statement of financial position above.
b) If the company wants to make a rights issue of 3 share for every
9 shares held at £4.5 per share. Calculate the number and
nominal value of the rights issue shares and the amount of
money raised.
c) What are the differences between a rights share issue and a new
full price share issue?
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