Corporate finance

BCL – L1 – Q76 – Company meetings and resolutions

Identify resolutions affecting shares that require court confirmation under Act 992.

Question

(a). Indicate resolutions affecting shares that are subject to confirmation by the court.

(b). The class A equity shareholders passed an ordinary resolution abolishing special dividend payment and voting rights of class B equity shareholders stipulated in the constitution. In exchange for these rights, the class A shareholders agreed to pay each class B shareholder GH $20,000. The class B shareholders are opposed to the new deal.

Propose a resolution.

(c). Explain the nature of priority of charges.

Answer

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Tags: Act 992, Charges, Company Law, Corporate finance, Priority of Charges, Secured Lending
Level: Level 1

Topic: Types of capital and the financing of companies

FM – L2 – Q122 – Business valuations

Calculate pre-acquisition market values of Clearfield Farms and Village Industries using Gordon’s growth model.

Question

Clearfield Farms Limited is considering acquiring Village Industries Limited, extracts of the financial statement of the two companies is as follows:

Statement of Financial Position

	Clearfield Farms Ltd GH¢’m	Village Industries GH¢’m
Net assets	6,300	1,892
Equity:
Ordinary share capital	2,000	1,000
Retained earnings	4,300	892
	6,300	1,892

The two companies retain the same proportion of profits each year and this is expected to continue into the future. Clearfield Farms Limited return on investment is 16%, while that of Village Industries Limited is 21%. One year after the post-acquisition period, Clearfield Farms will retain 60% of its earnings and expects to earn a return of 20% on new investment.
The dividends of both companies have been paid. The required rate of return of ordinary shareholders of Clearfield Farms Limited is 12% and Village Industries Limited 18%. After the acquisition, the required rate of return will become 16%.

Required:
(a) If the acquisition is to proceed immediately, calculate the:
(i) Pre-acquisition market values of both companies.

(ii) Maximum price Clearfield Farms Limited will pay for Village Industries Limited

(b) As a Finance Manager in your company, you have been asked to produce an explanatory memo to Senior Management on the subject Mergers and Acquisition. Your memo should clearly outline what actions a target company might take to prevent a hostile takeover bid.

Drake Limited is a Ghanaian registered multi-national company with FIVE subsidiaries in Europe, Asia and Africa. These subsidiaries have traditionally been allowed a large amount of autonomy, but Drake Limited is proposing to centralize most of the group’s treasury management operations.

Required:
(c) Acting as Group Head of Finance to Drake Limited, prepare a memo suitable for distribution to Senior Management of each of the subsidiaries explaining the potential benefits of treasury centralization.

Answer

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Tags: Centralization, Corporate finance, Financial efficiency, Risk Management, Treasury management
Level: Level 2

Topic: Treasury Management

FM – L2 – Q31 – Sources of finance: debt

Calculate the change in EPS if convertible bonds are converted into equity shares for a company with given financial data.

Question

A company has the following equity shares and bonds in issue:

2,000,000 equity shares of GH¢0.50 each.

GH¢1,000,000 of 4% convertible bonds.

The current earnings per share (EPS) is GH¢0.25.

The rate of tax is 30%.

The convertible bonds are convertible into equity shares at the rate of 40 shares for every GH¢100 of bonds.

Required

On the basis of this information, calculate the expected change in EPS if all the bonds are converted into equity shares.

Answer

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Tags: Convertible bonds, Corporate finance, Earnings per share, Equity shares, Financial instruments, Taxation
Level: Level 2

Topic: Sources of finance: debt

Tag (SQ): Corporate finance

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BCL – L1 – Q76 – Company meetings and resolutions

Identify resolutions affecting shares that require court confirmation under Act 992.

FM – L2 – Q122 – Business valuations

Calculate pre-acquisition market values of Clearfield Farms and Village Industries using Gordon’s growth model.

FM – L2 – Q31 – Sources of finance: debt

Calculate the change in EPS if convertible bonds are converted into equity shares for a company with given financial data.

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BCL – L1 – Q76 – Company meetings and resolutions

Identify resolutions affecting shares that require court confirmation under Act 992.

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FM – L2 – Q122 – Business valuations

Calculate pre-acquisition market values of Clearfield Farms and Village Industries using Gordon’s growth model.

You're reporting an error for "FM – L2 – Q122 – Business valuations"

FM – L2 – Q31 – Sources of finance: debt

Calculate the change in EPS if convertible bonds are converted into equity shares for a company with given financial data.

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