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a) Prepare a projected income statement for the year to 31 October Year 8. b) Calculate for Year 7 and Year 8 i) Earnings per Share ii) Degree of operating gearing iii) Degree of financial gearing iv) Degree of combined gearing c) Briefly evaluate the information produced in a & b

a) Prepare a projected income statement for the year to 31 October Year 8. b) Calculate for Year 7 and Year 8 i) Earnings per Share ii) Degree of operating gearing iii) Degree of financial gearing iv) Degree of combined gearing c) Briefly evaluate the information produced in a & b

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 7P
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a) Prepare a projected income statement for the year
to 31 October Year 8.
b) Calculate for Year 7 and Year 8
i) Earnings per Share
ii) Degree of operating gearing
iii) Degree of financial gearing
iv) Degree of combined gearing
c) Briefly evaluate the information produced in a & b
d) Calculate the sales revenue required in Year 8 to 
maintain existing earnings per share
The statement of financial position of the business revealed that 2 million £1 ordinary shares are in issue as well as 10 per cent loan notes with a nominal value of £1.3 million. There are no reserves as all profits have been distributed as dividends. It is believed that output can be increased by 20 per cent if the existing bottling line was replaced. The cost of the new line would be £2 million, which could be financed by the issue of 10 per cent loan notes at £80 per £100 nominal value. The new bottling line would reduce variable costs by £0.15 per bottle but would increase fixed costs by £150,000 per year. Installation of the new line can occur immediately after a decision is made.
Transcribed Image Text:The statement of financial position of the business revealed that 2 million £1 ordinary shares are in issue as well as 10 per cent loan notes with a nominal value of £1.3 million. There are no reserves as all profits have been distributed as dividends. It is believed that output can be increased by 20 per cent if the existing bottling line was replaced. The cost of the new line would be £2 million, which could be financed by the issue of 10 per cent loan notes at £80 per £100 nominal value. The new bottling line would reduce variable costs by £0.15 per bottle but would increase fixed costs by £150,000 per year. Installation of the new line can occur immediately after a decision is made.
Fowler Ltd Produces 'Vitex' sells for 1.20 per bottle Income Statement for the year ending 31 October Year 7 £ 1,800,000.00 |-£ 750,000.00 |-£ 420,000.00 £ 630,000.00 |-£ 130,000.00 £ 500,000.00 -£ 150,000.00 £ 350,000.00 Sales Revenue Variable Expenses Fixed Expenses Opearting Profit Interest Payable Profit before taxation Тах 30% Profit for the year
Transcribed Image Text:Fowler Ltd Produces 'Vitex' sells for 1.20 per bottle Income Statement for the year ending 31 October Year 7 £ 1,800,000.00 |-£ 750,000.00 |-£ 420,000.00 £ 630,000.00 |-£ 130,000.00 £ 500,000.00 -£ 150,000.00 £ 350,000.00 Sales Revenue Variable Expenses Fixed Expenses Opearting Profit Interest Payable Profit before taxation Тах 30% Profit for the year
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