Gearing

Froste Co | ACCA Specimen (CBE)

Froste Co has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is $0.50 per share and it expects that its next dividend per share, payable in one year's time, will be $0.52 per share.

 

The capital structure of the company is as follows:

 

 

$m

$m

Equity

 

Harpoon Co (6/15)*

Harpoon Co is planning to raise $14.4m through a rights issue. The chief financial officer of Harpoon has analyzed that it would take a 20% discount on the market price of share, which is currently $4.5, to make the new issue of shares fully subscribed.  The rights issue will be on a 1 for 5 basis and issue costs of 2% on the cash raised will be paid out of the cash raised. The capital structure of Harpoon Co is as follows:

Omani Co (12/11, amended)*

Omani Co is a stock exchange listed company that is concerned by its current level of debt finance. It plans to make a rights issue and to use the funds raised to pay off some of its debt. The rights issue will be at a 25% discount to its current ex-dividend share price of $8 per share and Omani Co plans to raise $300 million, all of the proceeds will be used to repay 9% bond to whatever extent possible. Omani Co believes that paying off some of its debt will not affect its price/earnings ratio, which is expected to remain constant.