Self-test Green Ltd has issued 500,000 ordinary £1 shares, 60,000 6 per cent £1 preference shares and £200,000 9 per cent debentures. You are told that the effective tax rate is 30 per cent.

You are required to calculate the return to ordinary shareholders if the operating profits (before debenture interest) were:

(i) £25,000

(ii) £100,000 If the preference shares were cumulative, what would be the significance to ordinary shareholders?