BEC225E - Introduction to Financial Management - Financial Management Assignment Help

Assignment Task

QUESTION 1
1.1 Diamine Ltd is a platinum mining company situated near Kimberley in South Africa. They are not as large as some of their competitors, but because of their prime location on a large placer deposit containing platinum in the earth’s crust, they are able to cope well with the demands of production and competition from other, larger mining corporations.
Lately, several incidents resulting from labour disputes between mine management and the miners themselves have resulted in prolonged strikes.
These strikes disrupt production and result in a drop in output that causes significant financial turmoil within the firm. Diamine Ltd are forced to sell off several prime acres above the rich deposit in order to ensure that they remain solvent.
The CFO for Diamine Ltd calls an urgent meeting of the executive board. Several of Diamine’s newer shareholders have expressed their dismay at the drop in their equity and want to know why their share value is not as it was when they originally invested. The CEO tasks the CFO with explaining to the shareholders why their equity has dropped and why their claims are being labelled as ‘residual’ by the company.
Clarify some of the reasons that the CFO might choose to explain the drop in shareholder equity to their shareholders.

1.2 Darren and Lyle are both business owners who run well-established and sizeable plumbing and water systems firms in East London and Alice. A recent drought has left the two towns water supply extremely depleted, and Darren and Lyle decide that they want to buy 5 000 desalination units and sell them at a high profit. They decide that they could merge their businesses to shoulder this new venture together. Lyle is convinced that debentures are the way to finance this endeavour. Is he correct? Explain your reasons for or against the use of debentures to fund young business ventures such as this.

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