Q1.financial statements for the last financial year for Shabanie plc

Shabanie plc’s shares have a par value of £0.25. The loan notes have a market value equal to their nominal value.

Shabanie plc’s policy is to depreciate capital expenditure in equal amounts over the estimated useful life of the asset. This policy matches the tax regulations that also state that tax must be paid at the appropriate rate on accounting profits on the last day of the year in which they are earned.

• Required

• Calculate Shabanie’s weighted average cost of capital, capital gearing ratio and interest cover.

• Calculate the net present value for each of Shabanie plc’s three projects and select the preferred project(s) discussing the reasons for your selection.
   
   

Income statement Revenue Cost of sales Gross profit Overhead expenses Operating profit Interest payable Profits before tax Corporation tax Earnings Dividends Retained earnings Statement of financial position Share capital (par value 0.25) Share premium Retained earnings Total equity Non-current liabilities. 10 year loan notes 5% Capital employed '000 1,200,000 (660,000) 540,000 (240,000) 300,000 (200,000) 100,000 (20,000) 80,000 (50,000) 30,000 25,000 250,000 300,000 575,000 4,000,000 4,575,000