Using the information provided in 33.20, assume the company faces three differing external environment scenarios: boom; steady

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Using the information provided in 33.20, assume the company faces three differing external environment scenarios: boom; steady state; and recession. Each scenario has different income potentials: if there is a boom economy, then earnings before interest and taxation (EBIT) of £1 million are expected; if the economy stays steady, EBIT are expected to remain at £660,000; whereas if the economy goes into recession, EBIT are expected to fall to £450,000.

Required

Calculate the impact of the change in gearing on the return on equity and the earnings per share for each scenario.

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Introduction To Financial Accounting

ISBN: 978-0077138448

7th edition

Authors: Anne Marie Ward, Andrew Thomas

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