Question 2 (a) OMEGA is a public listed company. Management is considering how the company should raise 20 million of finance which is required for an expansion that will be undertaken during the current year to 31 December 2018. OMEGA is particularly concerned about how stakeholders (including potential shareholders) are likely to react to its financial statements for the year to 31 December 2018. Due to market fluctuations, present forecasts by analyst suggest that OMEGA's earnings per share may be worse than market expectations. Mr Ken Brown, OMEGA's Finance Director, is in favour of raising the additional finance by issuing a convertible loan. He has suggested that the interest rate on the loan should be 6%. Currently, the market rate of this type of loan is 10%; so, the propose rate of interest is far below the market value. In order to make share price attractive to potential investors, the terms of the loan conversion into an equity would be very favourable to compensate for the low interest rate. (i) Explain why the Finance Director believes the above scheme may favourably improve OMEGA's earnings per share and gearing. (8 marks) (ii) Describe how the requirements of IAS 33 Earnings per Share is intended to prevent the above effects. (7 marks) (b) Explain why it is useful to disclose the EPS calculated on a diluted basis in addition to the basic earning pers share basis. (10 marks) [Total: 25 marks