ASSIGNMENT Part A: (12 marks) The last few years have been difficult economically but the...

Question

ASSIGNMENT Part A: (12 marks) The last few years have been difficult economically but the owners of Johnsons P/L, a medium-sized manufacturer of quality dining furniture is keen to grow the business....

1 answer below »

ASSIGNMENT

Part A: (12 marks)

The last few years have been difficult economically but the owners of Johnsons P/L, a medium-sized manufacturer of quality dining furniture is keen to grow the business. They have seen an increase in demand for their products from overseas and feel that they will need to increase their operation in order to continue to meet this demand. They are currently looking at a number of options to finance this expansion such as through debt and through equity raising (meaning they will need to “go public”). They have determined that they need to raise $60 million.

Giving consideration to the various options, you have been requested to advise the owners of Johnsons what the various options are, outlining the positives and negatives of each.

Required: write a report (should be extensive) to the owners detailing ALL the different options and considerations that you feel the owners should consider raising the $60 million.

Part B(8 marks)

Regardless of the advice you have given (Part A), the owners have decided to go “public” and issue an ‘IPO” They issue 30 million shares ($2.00), of which the payment on application is to $0.80 per share (closes 18^th April 2013), $0.50 four weeks after allocation (allocation is 13^th May 2013) and the remaining amount to be paid on 30^th July 2013 (the call will be made on 30^th June). The IPO attracts requests for 30.4 million shares. In this case, it exceeds the allowable number of shares and the directors decide to apply the “first-come, first-served” approach and return the excess back to the unlucky applicants

Required: You are to journalise the events (including dates and notations). You should assume that all monies were received on 18^th April (applications). What other option did the directors have with the excess demand, returning the excess?

005_ahlkbjo-iluz1ttj.docx

Answered Same Day Dec 23, 2021

Robert · Accepted Answer

Report to the management
Johnson PL is a medium manufacturing concern.  The operations of company will improve in 
future as there is increase in demand of products from overseas. For meeting the demand, 
company should have enough capital for procurement of goods, for payment of various expenses 
etc. 
Company is moving towards the phase of expansion for which it is considering the options of 
finance. Company can raise finance through various sources. The sources of finance can be 
equity source such as public offering or could be external such as loan from banks or financial 
institutions.
Equity financing - Initial Public Offering 
In initial public offering, company has to issue a prospectus which is an invitation to public that a 
new company has come into existence and its needs funds. 
Prospectus contains complete information about the company and the manner in which capital is 
to be raised. 
When prospectus is issued to public, prospective investors makes an application along with 
application money and deposits the same in investment bank. 
The company has to get minimum subscription, and then only it can proceed for allotment. 
If company received applications from public more than the shares offered it can either refund 
the money or it can allot shares on a pro rata basis. 
If Johnson PL goes public, it will enjoy following benefits 
Company can raise primary capital to fund expansion or acquisition.  Once company has become 
public, it gas access to new and liquid source of capital for any future requirement. 
 By adding capital to the business, company will have optimal capital structure.

ASSIGNMENT Part A: (12 marks) The last few years have been difficult economically but the owners of Johnsons P/L, a medium-sized manufacturer of quality dining furniture is keen to grow the business....

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment