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Brink Plc needs 10m over the coming year to finance an expansion of the business. To fund this, the company is considering the following
Brink Plc needs 10m over the coming year to finance an expansion of the business. To fund this, the company is considering the following finance options: Option 1-issue 5,000,000 1 ordinary shares, 3,000,000 5% 1 preference shares and the remainder will be raised using long-term loan with an interest rate of 5%. Option 2- issue 5,000,000 1 ordinary shares, 4,000,000 5% 1 preference shares and 1,000,000 6% debentures. Once the business expanded, it is expected that Bink Plc will make the following profits before interest and tax: Year 1 Year 2 Year 3 Year 4 300,000 330,000 350,000 360,000 Additional information: The tax charge is 10% of the reported profit before taxation. Required: a) Calculate the profits that would be available to ordinary and preference shareholders in each of the years 3 and 4 for each option. [10 marks] b) Briefly comment on your findings in part (a). [4 Marks] c) What would be the profit per share for ordinary shareholders in years 3 and 4 for each option. [4 marks] d) Suggest one other means by which Brink Plc might raise the funding it needs. [2 marks]
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