Question 1 Extracts of the financial statements of Barking plc (Barking) are shown below: Statement of Financial Position extract as at 30 April 2020 Ordinary shares (50p nominal value) Profit and Loss Account million 75 82 157 60 217 10% debentures Statement of Profit or Loss extract year to 30 April 2020 Profit before interest and taxation Interest payable Profit before taxation Corporation tax at 19% Profit after taxation million 36 (6) 30 (5.7) 24.3 Barking is planning to invest in projects in order to expand its operations and will need to raise 62.5 million via either: 1) 2) a one-for-three rights issue at 1.25 per share, or an issue of 6% irredeemable debentures. The directors of Barking believe that the proposed investments will lead to a 15% increase in the company's profit before interest and tax for the year to 30 April 2021. To help finance the projects, Barking will not pay any ordinary dividends for the years to 30 April 2020 and 30 April 2021. Barking pays corporation tax at a rate of 19% per year. Required Required (a) Prepare a forecast Statement of Profit or Loss for the year ended 30 April 2021 for each of the two possible financing methods and then calculate for each financing method: (i) the projected earnings per share for the year ended 30 April 2021 (ii) the projected level of gearing (at book value) as at 30 April 2021 Which financing method might a shareholder prefer? (19 marks) (b) Explain the terms "weak form efficient", "semi-strong form efficient" and "strong form efficient" as put forward by the Efficient Markets Hypothesis. (6 marks) (Total: 25 marks) ACF204 Page 2 of 8