The following information is provided for Bessemer Ltd which operates in an industry subject to marked variations
Question:
The following information is provided for Bessemer Ltd which operates in an industry subject to marked variations in consumer demand.
A corporation tax rate of 30 per cent on reported profit before tax may be assumed; the directors plan to pay out the entire post-tax profit as dividends.
\section*{Required:}
(a) The forecast profit and loss appropriation accounts for each of the next three years and year-end balance sheet extracts, so far as the information permits, assuming that the expansion is financed by:
(i) issuing additional shares, or (ii) raising a debenture.
(b) Calculate the forecast return on shareholders' equity, for each of the next three years, under the alternative methods for financing the planned expansion.
(c) An assessment of the merits and demerits of the alternative methods of finance based on the calculations made under \((a)\) and \((b)\) and any other relevant methods of comparison.
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