Page 311 - AFM Integrated Workbook STUDENT S18-J19
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Corporate failure and reconstruction
Question 2
Greekus Co’s directors are discussing a possible corporate reconstruction. The
company has a low level of gearing, so the Finance Director has suggested
that $36 million could be borrowed by issuing some 4% coupon bonds on the
market.
Two proposals for the use of the $36 million are being considered:
Proposal 1: Invest the full $36 million in some new non-current assets.
Proposal 2: Use the funds to buy back some equity shares at their current
market price. The shares would then be cancelled.
Greekus Co, Financial information
Extract from the forecast statement of financial position for next year
$000
Non-current assets 118,440
Current assets 22,490
–––––––
Total assets 140,930
–––––––
Equity and liabilities
Share capital – $1 par value 60,000
Reserves 45,320
–––––––
Total equity 105,320
Non-current liabilities 20,000
Current liabilities 15,610
–––––––
140,930
–––––––
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