Platinum Plc
Subject:BusinessPrice: Bought3
Platinum Plc. is a chain of UK Bars and restaurants. The Bars sell cocktails as well as other alcoholic and non-alcoholic beverages, while the restaurants typically sell European (particularly English and French) cuisine. The menus consist of the usual classics as well as their own innovative cocktails and dishes. The company's market share has been increasing. Although the prices are slightly higher than the competitors, the quality, customer service and the new dishes created by their Michelin starred chef have all contributed to the success experienced so far. The company currently owns 25 Bars and restaurants in the UK and is now interested in opening branches overseas. This will be the company's first experience in internationalisation and the management are determined to make it a success. The company is currently considering three different country options some within the EU and some outside the EU. However, the management are determined that they would take time to plan before selecting. Platinum Plc. currently earns a profit after tax of 7% on capital employed. The company had the following capital structure: 1,000,000 ordinary shares of £1 Retained earnings £900,000 In order to invest in some new profitable projects, the company wishes to raise £504,000 from a rights issue. As the financial advisor for the company, assist the company on the following: (a) Calculate the current earning per share in existing capital structure. (2 Marks) (b) Calculate the new earnings after announcement of issuing rights. (2 Marks) (c) If the current ordinary share price is £2.40, advise the company of the number of shares that must be issued if the rights price is £2.25, £1.90, £1.80 and £1.60 per share. (8 Marks) (d) State the earning per share in each right price and which price that is "break-even" for Platinum Plc. in raising the required capital. (3 Marks) (e) Assume that the following happens the company decided to raise its new equity capital by a 1 for 4 share rights issue at a price of £1.90 based upon 1,000,000 ordinary shares immediately the company announced the rights issue, the price became £2.10 per share (the cum rights price) Calculate the theoretical ex-right price. (5 Marks)
