Question 6.
Needinkash plc is considering expanding their business and needs
£12,000,000 to finance this expansion.
The company has total capital employed before the expansion of
£35,000,000.
The value of equity is currently £25,000,000 and they pay an annual
dividend of £2,600,000.
The value of non-current debt is currently £10,000,000 and they pay
annual interest of £800,000.
The company can raise the £12m by either:
1) Issue new shares
2) Secure new non-current debt
3) Borrow short-term (12 months) at a cost of 11.5% per annum
plus a 1% arrangement fee
4) Finding efficiencies in the management of working capital
(Inventories, Receivables & Payables).
Required:
a) How much would each of the four options cost for the first year
given the information provided?
[4 Marks]
b) For each of the four options what are the key points that should be
considered?
[16 Marks]
