Succulentes have grown further in business. They have also changed the structure of organisation to become...
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Succulentes have grown further in business. They have also changed the structure of organisation to become a public limited company, Succulentes PLC. They are currently working on an expansion plan that will require investment of £5m. They can raise the finance issuing 10% loan stock redeemable in 15 years, or by rights issue at 400p per share. This expansion is expected to increase sales revenue by 12% in the first year. Variable cost of sales currently makes up 85% of cost of sales. This ratio is expected to continue. Marketing and administrative expenses will increase by 5% due to new staff appointments. Succulentes currently follow a policy of paying out 60% of profit after tax as dividends. Succulentes PLC's current financial information is as follows: Income statement for the last year Sales revenue Variable cost Fixed cost Total cost of sales Gross profit Marketing and administrative expenses Profit before interest and tax Interest expenses Profit before tax Taxation Profit attributable to ordinary shareholders Dividend Net change in equity (retained profits) 34,000 6,000 30% 60% Long term finance used (from statement of financial position) £000 70,000 40,000 30,000 14,000 16,000 300 15,700 4,710 10,990 6,594 4,396 £000 Ordinary shares, nominal value 50p Retained profits 12% loan stock, redeemable in eight years Total long-term capital 5,000 25,000 4,000 34,000 Required: (10) For each financing proposal, prepare the forecast income statement after one additional year of operations. (10 marks) (11) Evaluate on the effects of each financing proposal on the following: Succulentes have grown further in business. They have also changed the structure of organisation to become a public limited company, Succulentes PLC. They are currently working on an expansion plan that will require investment of £5m. They can raise the finance issuing 10% loan stock redeemable in 15 years, or by rights issue at 400p per share. This expansion is expected to increase sales revenue by 12% in the first year. Variable cost of sales currently makes up 85% of cost of sales. This ratio is expected to continue. Marketing and administrative expenses will increase by 5% due to new staff appointments. Succulentes currently follow a policy of paying out 60% of profit after tax as dividends. Succulentes PLC's current financial information is as follows: Income statement for the last year Sales revenue Variable cost Fixed cost Total cost of sales Gross profit Marketing and administrative expenses Profit before interest and tax Interest expenses Profit before tax Taxation Profit attributable to ordinary shareholders Dividend Net change in equity (retained profits) 34,000 6,000 30% 60% Long term finance used (from statement of financial position) £000 70,000 40,000 30,000 14,000 16,000 300 15,700 4,710 10,990 6,594 4,396 £000 Ordinary shares, nominal value 50p Retained profits 12% loan stock, redeemable in eight years Total long-term capital 5,000 25,000 4,000 34,000 Required: (10) For each financing proposal, prepare the forecast income statement after one additional year of operations. (10 marks) (11) Evaluate on the effects of each financing proposal on the following:
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Related Book For
International Financial Reporting And Analysis
ISBN: 9781473766853
8th Edition
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn
Posted Date:
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