Address all the questions.
Harris is a manufacturing company that has recently developed a new product that is likely to be a major commercial success. Harris must raise fom in order to put this product into production. The company's most recent statement of financial position is as follows: Harris Statement of Financial Position as at 31 March 2011 Em Assets Property, plant and equipment 22 Current assets 3 25 Equity Share capital Retained earnings 13 Liabilities Non-current liabilities 11 Current liabilities 25 Property, plant and equipment comprises f10m of land and buildings and f12m of manufacturing equipment. All of Harris' non-current assets are valued at cost less depreciation. Harris had its land and buildings revalued as at the year end. The valuer's report indicated that the buildings were of a specialised nature, but that the property could nevertheless be marketed for approximately f17m. Non-current liabilities comprise a bank loan that has a covenant in place that forbids Harris from taking out further borrowings that would increase the company's gearing ratio (measured as debt over debt plus equity) to more than 50%. (i) Explain why a bank might be interested in a borrower's gearing ratio. [4] (ii) Calculate Harris' gearing ratio under each of the following conditions: using the unadjusted figures according to the most recent statement of financial position assuming that Harris had borrowed the f8m required to fund the expansion assuming that Harris had borrowed the f8m required to fund the expansion and that the company had revalued its land and buildings in accordance with the valuer's report [6] (iii) Explain why the directors of limited companies are likely to take great care when deciding whether to revalue property. [5] (iv) Explain why the shareholders might prefer to have the property revalued rather than shown at cost less depreciation. [5] [Total 20]A particular area in a town suffers a high burglary rate. A sample of 100 streets is taken, and in each of the sampled streets, a sample of six similar houses is taken. The table below shows the number of sampled houses, which have had burglaries during the last six months. No. of houses burgled x 0 1 2 3 4 5 6 No. of streets f 39 38 18 4 0 0 (i) (a) State any assumptions needed to justify the use of a binomial model for the number of sampled houses per street which have been burgled during the last six months. (b) Derive the maximum likelihood estimator of p, the probability that a house of the type sampled has been burgled during the last six months. (c) Fit the binomial model using your estimate of p, and, without doing a formal test, comment on the fit. (ii) An insurance company works on the basis that the probability of a house being burgled over a six-month period is 0.18. Carry out a test to investigate whether the binomial model with this value of p provides a good fit for the data
