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Fem Fashion (Pty) Ltd and Styles (Pty) Ltd are competitors. Their retail store branches are selling ladies fashion clothing and accessories. Their shareholders expect them
Fem Fashion (Pty) Ltd and Styles (Pty) Ltd are competitors. Their retail store branches are selling ladies fashion clothing and accessories. Their shareholders expect them to follow the most efficient capital financing strategies that will optimise shareholder returns, measured in earnings per share (EPS). The current 2021 economic environment is depressed and consumer spending on fashion items and accessories has decreased significantly since the middle of 2020. Expectations are that consumer confidence and spending are still decreasing, and economic growth predictions are downwards adjusted. Both companies expect that sales and profits will not improve in the remainder of 2021. You have been provided with the following information concerning the current (2021) financial position of both companies: FEM STYLE Sales revenue R4 250 000 R3 825 000 EBIT (percentage of sales) 45% 42% Taxation 28% 28% Ordinary shares issued 2600 000 1900 000 Debt at 12% per annum R1 800 000 Debt at 10% per an annum R2 500 000 Additional information: Fem Fashion's management expects sales to decrease by 8% in 2022 and EBIT to equal 40% of decreased sales. Styles' management estimates that sales in 2022 will decrease by 12% and EBIT will equal 38% of decreased sales. . Required: Which company is adding more value for its shareholders despite the poor economic conditions and downwards adjusted expectations? Support your answer with relevant calculations
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