Accounting and Finance: Analyzing Venture Plc's Stock Market Listing

This assignment provides a detailed financial analysis of Venture Plc as it plans to enter the stock market. It examines the costs associated with an offer for sale, including issuing house commission, underwriting commission, accounting and legal fees, capital duty, and advertising costs, estimating the total issue costs. Furthermore, it calculates the funds raised from a tender offer and the average size of shareholders. The assignment also uses price/earnings valuation model, dividend growth model, and discounted cash flows to estimate the value for Comfy hotel. Finally, it evaluates expected returns and standard deviations for investments in Tropicana plc and different investment portfolios, providing a comprehensive overview of financial decision-making in the context of stock market entry and investment management.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTS
Question 1
a) ii) The total issues cost (excluding share registration cost) if Venture Plc. uses an offer for
sale would be around $ 572,000.
Total Issue Costs Under Offer for Sale
Issue Amount/Initial Offering $ 15,000,000
Direct Cost
Issuing House Commission $ 75,000
Underwriting Commission $ 225,000
Accounting and Legal Fees $ 40,000
Total Direct Costs $ 340,000
Indirect Cost
Capital Duty $ 150,000
Multiple Page Add (Advertisement Cost) $ 50,000
Small Add (Advertisement Cost) $ 3,000
Total Indirect Costs $ 203,000
Stock Exchange Initial Fee
Offer for Sale $ 4,000
Other Costs $ 25,000
Total Initial Fees $ 29,000
Total Issue Costs $ 572,000
b) The amount of funds that the company will raise from the tender, net of costs would be
around $2,937,240,000 and the average size of the shareholders would be around
$13,930.
Price tendered Number of Number of Amount of

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applicants shares Funds
(cents) at the price bid for at the
price
Raised from
Tender
175 2 22000 3850000
170 84 74000 12580000
165 127 192000 31680000
160 410 724000 115840000
155 1123 928000 143840000
150 2254 1324200 198630000
145 3520 4956000 718620000
140 6410 12230000 1712200000
Total 13930 2937240000
Question 2
b) Payment stream diagram showing the cash flows to each party before allowance for any
charges is shown below:
c) From the above strategy it could be seen that ABC Company would on a net have to pay
4.35% by entering into the Swap, which is comparatively less than the 5% initial fixed rate that
the company otherwise would have paid. On the net the company ABC earns 0.65% from the
swap.
Question 3
Calculate the estimated value for Comfy hotel using:
a) The price/earnings valuation model
Price to Earnings Valuation Model
Particulars Amount ($)
Earnings of the Company

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Current Earnings Per Share 0.38
Number of Ordinary Shares 6,000,000
Net Earnings of the Company 2,280,000
P/E Ratio (Times) 13
Value 29,640,000
Price Per Share 4.94
b) The Dividend Growth Model
Dividend Growth Model
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Past Five Year's Dividend 0.16 0.18 0.18 0.22 0.24
Average Growth Rate 10%
Formula : D1/(Re-g)
Where;
Current Dividend 0.28
Growth Rate 10%
Required Rate of Return 16%
Value 5.13
C) Discounted Cash Flows:
Discounted Cash Flows
Particulars Year 0 Year 1 Terminal Value
Estimated Cash Flows
Expected Cash Flows 3.75 55.71
Terminal Growth Rate
Cash Flows 3.75 55.71
Required Rate of Return 11%
Present Value of Cash Flows 3.38 50.19
Estimated Cash Flows (In Million) 53.57
Total Number of Shares (In Million) 6
Estimated Share Price 8.93

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Question 4
a) The expected return will be 15.60% and standard deviation of a 100% investment in
Tropicana plc will be around 3.70%.
b) The expected return will be 9.50% and standard deviation of a 100% investment in
Tropicana plc will be around 4.75%.
c) The expected return from Portfolio 1 is around 12.6% and the standard deviation would
be around 71%.
The expected return from Portfolio 2 is around 11.0% and the standard deviation would
be around 63%.