ISSUED CAPITAL (m) $87.00. DEPT RATIO = 54.5% and 27.3% TIME INTEREST EARNED RAT

Question

ISSUED CAPITAL (m) $87.00. DEPT RATIO = 54.5% and 27.3% TIME INTEREST EARNED RATIO = 2.60 and 5.20 16 Marks the firm's dePEX board of MAXIPLEX is considering raising additional equity to repay $75 million of he firm's debt. The company has total assets of $275 million and debt of $150 million. MAXIPLEX has an issued capital of 60 million shares and the current share price is $3.20 The $150 million of debt carries an interest rate of 10% MAXI PLEX s EBIT is currently $39 million. The board is considering a proposal for a 1-for-3 rights issue at $2.70 per share and a private placement of 7 million shares to institutional investors at $3.00 per share. The corporate tax rate is 28%. (a) Verify that the equity raising proposal with raise the required $75 million (2 marks) (b) Complete WORKSHEET B below to help analyse the proposed capital raising Use pencil so that it is easy to correct errors. (8 marks) WORKSHEET B All s in Sm Proposed Current 275.00 150.00 125.00 Capital Structure Capital Structure 275.00 Assets Debt Equity 39.00 39.00 15.00 24.00 6.72 17.28 Interest Expense NPBT - Tax NPAT Issued capital (m) - 60.00 $0.288 54.5% 2.60 Debt ratio Times Interest Eaned ratio Page 17 of 24

Explanation / Answer

Solution.

1. Calculation of issued capital.

Pre issue capital = 60 M

Private palacement share ( 7M x $3 = 21 m ) = 7 M

Right Issue ( 20 M x $2.70 = 54 M ) = 20 M

Total issued share = 60 + 7 + 20 = 87 M.

2. Calculation for debt ration.

Formula = Debt / Total Asset

Current = 150 / 275 = 54.5%

Proposed = 75 / 275 = 27.3%

3. calculation for TIME INTEREST EARNED RATIO.

Formula = EBIT / interest Expense

Current = $39 / $15 = 2.60

Proposed = $39 / $7.5 = 5.20

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