QUESTION 1 House of Ho plc decided to invest $ 1,000,000 by purchasing shares in either A Ltd or B Ltd.

House of Ho plc purchases raw materials from both these smaller companies. The following information is available: A Ltd. ($) Issued capital, fully paid ordinary Shares $1 each 9% Debentures Accumulated reserves at 31 December 2007 Current assets Current liabilities Total spending on research and development over the last three years Net profits for : Year 14 Year 15 Year 16 Year 17 B Ltd ($)

1,900,000 2,300,000 1,100,000 850,000

1,400,000 1,100,000 2,800,000 1,800,000 700,000 2,000,000 600,000 750,000 850,000 900,000 900,000 90,000 700,000 100,000 900,000 800,000

Proportion of House of Ho plcs annual consumption of raw material purchased from smaller companies; A Ltd: 45% and B Ltd: 10% respectively. Amount owed by House of Ho plc to the smaller companies; A Ltd: $650,000 B Ltd: $150,000. Current market value per share of ordinary Shares A Ltd: $1.10, B Ltd: $0.85 REQUIRED: Using the above information, state and elaborate any assumption that you consider necessary. Give six reasons why House of Ho plc might choose to purchase shares in either A Ltd. or B Ltd. For each reason, indicates which companys shares should be purchased. Note: Where relevant, all supporting calculations should be shown.