Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 3 (30%) Xpand is a publicly listed company which has experienced rapid growth in recent years through the acquisition and integration of other companies.

image text in transcribed
Question 3 (30%) Xpand is a publicly listed company which has experienced rapid growth in recent years through the acquisition and integration of other companies. Xpand is interested in acquiring Hydan, a retailing company, which is one of several companies owned and managed by the same family. The summarised nancial statements of Hydan for the year ended 30 September 2014 are: Statement of nancial position $'000 $'000 Assets Non-current assets Property, plant and equipment 32,400 Current assets Inventory 7,500 Bank 100 7,600 Total assets 40,000 Equity and liabilities Equity Equity shares of $1 each 1,000 Retained earnings 18,700 19,700 Non-current liabilities l Page 7 l7 l l DirectorsY loan accounts (interest free) 10,000 Current liabilities Trade payables 7,500 Current tax payable 2,800 10,300 Total equity and liabilities 40,000 Statement of prot or loss $'000 Revenue 70,000 Cost of sales (45,000) Gross prot 25,000 Operating costs (7,000) Directors' salaries (1,000) Prot before tax 17,000 Income tax expense (3,000) Prot for the year 14,000 From the above nancial statements, Xpand has calculated for Hydan the ratios below for the year ended 30 September 2014. It has also obtained the equivalent ratios for the retail sector average which can be taken to represent Hydan's sector. Hydan Sector average Return on equity (ROE) (including directors' loan accounts) 47 - 1% 220% Net asset turnover 2 - 36 times 1 -67 times Gross prot margin 35 ' 7% 30 - 0% Net prot margin 20 - 0% 12 - 0% From enquiries made, Xpand has learned the following information: I. Hydan buys all of its trading inventory from another of the family companies at a price which is 10% less than the market price for such goods. II. After the acquisition, Xpand would replace the existing board of directors and need to pay remuneration of $25 million per annum. III. The directors' loan accounts would be repaid by obtaining a loan of the same amount with interest at 10% per annum. |V. Xpand expects the purchase price of Hydan to be $30 million. Required: (a) Recalculate the ratios for Hydan after making appropriate adjustments to the financial statements for notes (i) to (iv) above. For this purpose, the expected purchase price of $30 million should be taken as Hydan's equity and net assets are equal to this equity plus the loan. You may assume the changes will have no effect on taxation. \\ j Page 8 (b) In relation to the ratios calculated in (a) above, and the ratios for Hydan given in the question, comment on the performance of Hydan compared to its retail sector average. (Total: 30 marks) r

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Quality Control Procedure For Statutory Financial Audit An Empirical Study

Authors: Siddhartha Sankar Saha, Mitrendu Narayan Roy

1st Edition

1787142272, 9781787142275

More Books

Students also viewed these Accounting questions

Question

Prepare an adjusting entry for an unearned revenue.

Answered: 1 week ago

Question

L A -r- P[N]

Answered: 1 week ago

Question

Identify the critical elements in a performance management system

Answered: 1 week ago

Question

Identify the skills necessary for effective coaching

Answered: 1 week ago