Continuousness to part 1, Amold Ltd reported the following profit for the year ending 31 December...

 

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Continuousness to part 1, Amold Ltd reported the following profit for the year ending 31 December 2019: Profit before interest and tax Interest Profit before tax Tax at 30% Earnings Dividends Retained earnings £000 21,520 (120) 0.2221,400 (6,420) 14,980 (630) 14, 350 The company wants to raise an additional £1 million for a new production plant which will be raised by an issue of 8% bonds. Through this investment Arnold will add an extra £2 million per year to its profits before interest and tax. Dividends will be paid at 22p per share. Assume that taxation will remain at 30% and that interest cost will remain constant plus the additional interest cost of the new investment. Required a. Produce a profit forecast for next year adjusting for the new investment (7 marks) b. Demonstrate the effects of the new investment on i. Interest cover ii. Financial gearing iii. EPS c. Comment briefly on your findings (5 marks) (5 marks) (5 marks) (8 marks) Continuousness to part 1, Amold Ltd reported the following profit for the year ending 31 December 2019: Profit before interest and tax Interest Profit before tax Tax at 30% Earnings Dividends Retained earnings £000 21,520 (120) 0.2221,400 (6,420) 14,980 (630) 14, 350 The company wants to raise an additional £1 million for a new production plant which will be raised by an issue of 8% bonds. Through this investment Arnold will add an extra £2 million per year to its profits before interest and tax. Dividends will be paid at 22p per share. Assume that taxation will remain at 30% and that interest cost will remain constant plus the additional interest cost of the new investment. Required a. Produce a profit forecast for next year adjusting for the new investment (7 marks) b. Demonstrate the effects of the new investment on i. Interest cover ii. Financial gearing iii. EPS c. Comment briefly on your findings (5 marks) (5 marks) (5 marks) (8 marks)

Answer rating: 100% (QA)

a Profit forecast for next year adjusting for the new investment Profit before interest and tax PBIT ... View the full answer