[Solution]Investment and financing decisions

AB plc is a listed company, which operates in the construction of residential property. It is currently financed principally by equity. Its board of directors…

AB plc is a listed company, which operates in the construction of residential property. It is currently financed principally by equity. Its board of directors is currently considering purchasing all the shares of an unlisted company, which will allow it to expand into a new geographical region. The price being asked by the shareholders of the unlisted company equals about 25% of market capitalisation. The scale of the investment is such that AB plc could not raise the cash from internal sources. A decision now needs to be made on the method of funding. The directors are not sure which method of funding best suits the AB plc. Required: 1. Suggest 4 alternative methods of funding to the Board of Directors of AB plc debating critically the reasons for using each of these methods of funding. All the relevant factors must be explained and placed clearly in the context of the particular circumstances of AB plc. 2. Critically discuss the link between the above financing decision and investment decision relating to the acquisition of the unlisted company.

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