(a) Explain two circumstances under which dilution of earnings might be acceptable to the shareholders of one of the companies in a take-over deal.

(b) What are the advantages and disadvantages of a rights issue from the point of view of:

(i) The issuing company?

(ii) The shareholders?

(c) The six-months cash forecast for Ken Electricals Ltd., which manufactures household electrical goods shows that, unless drastic action is taken, the company will be in a serious liquidity problem. It is decided that outlay on all types of expenditure must be reduced without significantly affecting the forecast sales.

Select six headings of expenditure where you consider economies could be made, and describe how you would achieve savings in these areas.