19:05 1 22% Financial accounti...Assignment 3.pdf - Read-only : 2 Q2 The capital structures and summarised Profit and Loss Accounts of A Ltd, B Ltd, C Ltd and D Lid are shown below for the year ended 31 December 2006: A Ltd B Led C Ltd DLtd $ s Capital Structure Ordinary shares of $1 each 125,000 125,000 100.000 50,000 Reserves (average for the year) 125,000 100,000 75,000 25,000 10% Preference shares 25,000 50,000 15% Debentures 25,000 50,000 125,000 250,000 250.000 250,000 250.000 Profit and Loss Account Net trading profit Debenture interest 50,000 50.000 3,750 50,000 7,500 50.000 18.750 31.250 50,000 15,000 46.250 13.875 42,500 12.750 9.375 Corporation tax (30%) Net profit after tax Preference dividend 35,000 32.375 29,750 2,500 21,875 5,000 Equity earnings after tax 35,000 32.375 27,250 16,875 (7 marks Required (a) Define and explain gearing. (b) Calculate for each of the above companies: 1) The return on the value of equity m) The cover for debenture interest (ii) The gearing ratio. (9 marks) (c) Calculate and critically evaluate the effect of a fall in the net trading profit to $25,000 for all the companies. (9 marks) (Total marks 25) END