The following are the accounts of Bouncy plc, a company that manufactures playground equipment, for the year ended 30 November 20X6.

The directors are considering two schemes to raise £6,000,000 in order to repay the debentures and finance expansion estimated to increase profit before interest and tax by £900,000. It is proposed to make a dividend of 6p per share whether funds are raised by equity or loan. The two schemes are:
1 An issue of 13% debentures redeemable in 30 years;
2 A rights issue at £1.50 per share. The current market price is £1.80 per share (20X5: £1.50; 20X4: £1.20).

Required:
(a) Calculate the return on equity and any three investment ratios of interest to a potential investor.
(b) Calculate three ratios of interest to a potential long-term lender.
(c) Report briefly on the performance and state of the business from the viewpoint of a potential shareholder and lender using the ratios calculated above and explain any weaknesses in these ratios.
(d) Advise management which scheme they should adopt on the basis of your analysis above and explain what other information may need to be considered when making thedecision.

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20x6 20X5 2200 1570 150 Profit before interest and tax Interest expense Profit before tax Taxation Profit after tax Dividends paid Retained profit Statements of financial position as at 30 November 20X6 170 2030 420 520 730 1300 900 250 250 050 650 20x6 20X5 Non-current assets (written-down value) Current assets Inventories Receivables 6,350 5,600 2,100 2,070 710 540 0,160 9,210 Creditors: amounts due within one year Trade payables Taxation Bank overdraft Total assets less current liabilities Creditors: amounts due after more than one year 10% debentures 20X7/20X8 040 ,130 450 480 8200 7,150 550 370 1500 500 5,650 6,700 Capital and reser ves Share caprtal: ordinary shares of 50p fully paid u hare premium Retained earnings 3,000 3,000 750 950 900 5,650 750 6,700