Question 4: The following are extracts from the statement of financial position of OSCAR 000 000 Equity Ordinary shares of 1 8,000 Reserves 20,000 28,000 Non-current liabilities Bond 4,000 Assets less current liability 32,000 28,000 The profit of the year just ended: 000 Profit before interest and tax 15,000 Interest (400) Profit before tax 14,600 Tax at 30% (4380) Earnings 10,220 Dividends (2,044) Retained earnings 8,176 The company wants to raise $10 million to establish a new production plant which will be raised by an issue of 8% bonds. Through this investment OSCAR will add an extra 1 million per year to its profits before interest and tax. Dividends will be paid at 30p per share. Assume that taxation will remain at 30% and that interest cost will remain constant plus the additional interest cost of the new investment. Required (7 marks) 1. II. Produce a profit forecast for next year if the investment was made Demonstrate the effects of the new investment on a. Interest cover b. Financial gearing C. EPS Comment briefly on your findings (5 marks) (5 marks) (5 marks) (8 marks)