| 1.95 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | Unnamed: 5 | Unnamed: 6 | Unnamed: 7 | SOLUTION |
|---|---|---|---|---|---|---|---|---|
| a) | Equity Gearing Ratio | Rembrandt PLC | Caravaggio PLC | MAX MARK 2 | ||||
| (£400,000+£200,000):£250,000 | (£150,000+£100,000): £500,000 | |||||||
| 2.4:1 | -1.0 | 0.5:1 | -1.0 | Ratio must be shown x:1 | ||||
| b) | Justify which company would give the best return to Ordinary Shareholders in periods of high profit. | MAX MARK 2 | ||||||
| Rembrandt plc (1) would give the best return in times of high profit as it has a highest gearing ratio. (1) | ||||||||
| c) | Rembrandt plc (£) | |||||||
| Operating Profit | 240000 | Award corporation tax for 1 mark if Debenture finance cost not included. | ||||||
| less Debenture finance cost | 20000 | -1.0 | ||||||
| 220000 | ||||||||
| less Corporation Tax | 55000 | -1.0 | MAX MARK 2 | |||||
| PROFIT FOR THE YEAR AFTER TAX | 165000 | If no preference dividend included award 1 mark for Profit available to ordinary shareholders | ||||||
| d) | Less Preference dividend | 20000 | -1.0 | |||||
| Profit available to ordinary shareholders | 145000 | MAX MARK 2 | ||||||
| e) | Dividend Paid - £0.07 x 250,000 | 17500 | Where the Retained Profit figure is implied, award 2 marks to the Ordinary Dividend | |||||
| RETAINED PROFITS | 127500 | -1.0 | MAX MARK 2 | |||||
| f) | Earnings per share | (£165,000-£20,000) / 250,000 | -1.0 | MAX MARK 1 | ||||
| 0.58 | -1.0 | |||||||
| g) | Price/Earnings ratio | £1.74 / £0.58 | -1.0 | MAX MARK 1 | ||||
| 3 | ||||||||
| 3 times | -1.0 | |||||||
| h) | Dividend Cover | (£165,000-£20,000) / 17,500 | -1.0 | MAX MARK 1 | ||||
| 8.285714285714286 | ||||||||
| 8.29 times | -1.0 | |||||||
| MAX MARK 1 | ||||||||
| i) | Dividend Yield | £0.16 / £1.66 x 100 | -1.0 | |||||
| 0.0963855421686747 | -1.0 |