4.2.1) Assume that Timber Town Ltds profit after tax increased by 30% from 2020 to 2021 and their BEPS only increased by 10%. Explain why the increase in profit after tax is different from the increase in BEPS and suggest which figure or ratio (i.e. the Profit after tax or the BEPS is a better indication of the profitability of Timber Ltd over time? (3 marks) 4.2.2) What is headline earning per share (HEPS)? (2 marks)

QUESTION 4 (18 marks) Timber Town Ltd is a manufacturer of wooden furniture and is listed on the local stock exchange. The following are extracts from the companys Statement of Profit and Loss for the years ended 31 December 2020 and 31 December 2021. 2020 Operating profit 660 000 Finance costs (relates only to the 12% debentures) (90 000) Profit before tax 570 000 Taxation for the year (159 600) Profit after tax 410 400 The companys issued share capital at 1 January 2020 was as follows: 3 000 000 ordinary shares of 25 cents each. 700 000 10% cumulative irredeemable preference shares at a face value of R1 each. On 1 July 2020, the company issued 12% convertible debentures at face (nominal) value for a total of R1 500 000. Each debenture has a face value of R100 and is con-vertible into 125 ordinary shares on 31 December 2023. On 1 October 2020, Timber Town Ltd issued another 1 000 000 ordinary shares at 25c each. There were no other changes to the issued share capital. The South African income tax rate has remained unchanged at 28% for the past two years. Ignore VAT and dividends tax.