MBAC813 - Which of the Two Methods of Raising Finance is Best for Hitech ltd - Accounting & Finance Assignment Help

Assignment Task

Question 1
Introduction
The Royal ltd is a publisher of a daily newspapers based in Gauteng, South Africa. It also provides web Media to the world wide audience. It has been listed on the Johannesburg stock exchange since 1994. The Royal has three distinct divisions, that is, the Newspapers, Advertising and the web divisions. The divisions are discussed below as follows:
The Newspaper division
This division has two printing sites and three offices. The royal publishes one Sunday Newspaper and three daily Newspapers in South Africa. The three offices edit the Sunday Newspaper and the three daily Newspapers. The Newspaper division owns two subsidiary companies namely; Chronicle and Herald. Chronicle and Herald are involved in publishing. Chronicle is based in Botswana within the SADC region and Herald is based in Ghana which is outside the SADC region. All printing for the division’s publications is done at the two printing sites, except for the publications produced by Chronicle and Herald. The two subsidiaries have their own printing sites.
The Web division This division owns 200 websites which it maintains and develops. The development and maintenance of web material has become an important part of the business for “The Royal ltd”. During the past 10 years the division developed online versions of all the newspapers produced by the Newspaper division. Some websites are more popular than others. This is measured by the number of hits they receive.

The Advertising Division
This division handles the sale of advertising space for the whole company (The Royal ltd). That is, the advertisements that appear in the print media and web pages produced by the Newspaper division and the web division are all handled by the Advertising division.

Headquarters of the Group
The Royal ltd has a head office that is based in Sandton. This is in addition to the three operating divisions that it has. The board of directors sits at the head office in Sandton. The headquarters deal with the group’s corporate affairs. The headquarters also administers and develops the group’s policies and procedures.

Investment criteria
Criterion 1
T Royal ltd assesses international projects using the NPV criterion. A risk adjusted discount rate of 12% is used.
Criterion 2
The royal requires international projects to generate an accounting rate of return of at least 25% per year. ARR is defined as follows: Average accounting profit before interest and taxes /average annual investment Ignore taxes in your calculations

Required:
a) Discuss the reasons for the volatile movements in Royal’s share price (no calculations required)
b) Discuss the risks that should be considered by Royal in evaluating the project(show calculations where necessary)
c) Determine the fair market price of the shares after acceptance of the project and after the rights issue
d) Determine the impact of the project on Royal’s financial objectives
e) Evaluate the project using the NPV criterion 
f) Evaluate the project using the ARR criterion

Question 2
Hitech Learning ltd is a retailer of laptop computers. It has its headquarters in the city of Auckland in the Democratic Republic of Utopia. Its target market is students and the general public. The company management believes there are opportunities for further expansion. Currently, the company has 25 stores located in the vicinity of tertiary education institutions, and another 30 stores situated in shopping malls around the Republic of Utopia.
The republic of Utopian’s currency is the Utopian dollar (Ut$). Hitech Learning is listed on the Utopian stock exchange. It purchases laptop computers from domestic and foreign suppliers. Most of the suppliers are based in Germany. The purchases are denominated in Euros.

Required:
a) Which of the two methods of raising finance is best for Hitech ltd and what factors should Hitech take into account in making this decision? Justify your answer
b) Determine the weighted average cost of capital (WACC) for the company as at 31 march 2019. Assume the company issues euro bonds
c) What factors should Hitech ltd take into account in deciding whether to use a fixed or a floating interest rate? Assume Hitech opts to use the loan from local banks

d) What are the benefits of securitising trade receivables?

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