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and tax by Problem 2 e consirigwhether to use equity or delbt finance to raise the $2m needed by trhe is $1.00 per 20% The company is expansion of its business operations which wil increase prft before intr business expansion If equity finance is used, a 1 for 5 rights issue will be offered to existing 20% dscount to the shareholders at current ex dividend share price of $5-00 per share The nominal value of the ordinary shares share. If debt finance is used, Tin Co wil issue 20,000 8% loan notes Financial statement information prior to raising new finance with a nonnal value of S100 per loan note. Profit before interest and tax Finance costs (interest) Taxation Profit after tax $000 1,597 (315) (282) 1,000 $000 Equity Ordinary shares Retained earnings Long-term liabilities: 7% loan notes 4,500 Total equity and long-term liabilities 12,488 The current price earnings ratio of Tin Co is 125 times. Corporation tax is payable at a rate of 22%. 2,500 5,488 Companies undertaking the same business as Tin Co have an average debt/equity ratio (book value of debt divided by book value of equity) of 60.5% and an average interest cover of 9 times. Required: (a) ( Calculate the theoretical ex rights price per share. (2 marks) (ii) Assuming equity finance is used, calculate the revised earnings per share after the business expansion. (4 marks) debt finance is used, calculate the revised earnings per share after the business expansion. (3 marks) iv) Calculate the revised share prices under both financing methods after the business expansion. 1 mark) (v) Use calculations to evaluate whether equity finance or debt finance should be used for the planned business expansion. (4 marks) (b) Discuss TWO Islamic finance sources which Tin Co could consider as alternatives to a rights issue or (20 marks) a loan note issue. (6 marks)