Brink Plc needs 10m over the coming year to finance an expansion of the business. To...

Transcribed Image Text:

Brink Plc needs £10m over the coming year to finance an expansion of the business. To fund this, the company is considering the following finance options: Option 1-issue 5,000,000 £1 ordinary shares, 3,000,000 5% £1 preference shares and the remainder will be raised using long-term loan with an interest rate of 5%. Option 2- issue 5,000,000 £1 ordinary shares, 4,000,000 5% £1 preference shares and £1,000,000 6% debentures. Once the business expanded, it is expected that Bink Plc will make the following profits before interest and tax: Year 1 Year 2 Year 3 Year 4 £ 300,000 330,000 350,000 360,000 Additional information: The tax charge is 10% of the reported profit before taxation. Required: a) Calculate the profits that would be available to ordinary and preference shareholders in each of the years 3 and 4 for each option. [10 marks] b) Briefly comment on your findings in part (a). [4 Marks] c) What would be the profit per share for ordinary shareholders in years 3 and 4 for each option. [4 marks] d) Suggest one other means by which Brink Plc might raise the funding it needs. [2 marks] Brink Plc needs £10m over the coming year to finance an expansion of the business. To fund this, the company is considering the following finance options: Option 1-issue 5,000,000 £1 ordinary shares, 3,000,000 5% £1 preference shares and the remainder will be raised using long-term loan with an interest rate of 5%. Option 2- issue 5,000,000 £1 ordinary shares, 4,000,000 5% £1 preference shares and £1,000,000 6% debentures. Once the business expanded, it is expected that Bink Plc will make the following profits before interest and tax: Year 1 Year 2 Year 3 Year 4 £ 300,000 330,000 350,000 360,000 Additional information: The tax charge is 10% of the reported profit before taxation. Required: a) Calculate the profits that would be available to ordinary and preference shareholders in each of the years 3 and 4 for each option. [10 marks] b) Briefly comment on your findings in part (a). [4 Marks] c) What would be the profit per share for ordinary shareholders in years 3 and 4 for each option. [4 marks] d) Suggest one other means by which Brink Plc might raise the funding it needs. [2 marks]

Answer rating: 100% (QA)

Answer A Computation of profits would be available to ordinary and preference shareholders Profit be... View the full answer