Self-test Traveller Ltd was awarded a contract to construct a new bridge.

The funds provided by the shareholders were not sufficient to complete the contract and the company decided to issue 9 per cent debentures as a way of obtaining the necessary additional finance.

The following is an extract from the balance sheet as at 31 December 2008.

Fixed assets 2,600,000 Current assets 320,000 Current liabilities (260,000)

Net current assets 60,000 2,660,000 Long-term liabilities 9% debentures (980,000)

1,680,000 Capital and reserves Ordinary shares of £1 1,000,000 Share premium account 220,000 Profit and loss account 460,000 1,680,000 During the trading period ended 31 December 2008, only a small profit was made by the company after paying debenture interest.

You are required to record the following:

(i) On 1 January 2009, the directors decided to use all the distributable reserves to pay the ordinary shareholders a dividend. Calculate the dividend per share, expressing your answer in pence per share.

(ii) At 1 January 2009 the market price was quoted at £1.80 per share. Calculate the dividend yield based upon this price.

(iii) As a result of discussions with the debenture holders, the company converted £500,000 of the debentures to 500,000 of £1 ordinary share at par, on 1 March 2009. Calculate the gearing ratio for the company after the conversion of the debentures into shares.