Question $5$

Assume that the rate of profits $($p$)$ is fixed at $20\%.$ Complete the following table for

the proportion of profits absorbed by interest.

Debt$/$Equity Ratio Proportion of Profits absorbed by Interest

$($Gearing$)$ r $=5\%$ r $=10\%$ r $=15\%$ r $=20\%$ r$=25\%$

$0\mathrm{.}5?????$

$1\mathrm{.}5?????$

$2\mathrm{.}5?????$

What can you conclude about the impact of primary gearing on the vulnerability of a

company to rises in interest rates?Question $5$

Assume that the rate of profits $($p$)$ is fixed at $20\%.$ Complete the following table for

the proportion of profits absorbed by interest.

Debt$/$Equity Ratio

$($Gearing$)$

$0\mathrm{.}5$

$1\mathrm{.}5$

$2\mathrm{.}5$

Proportion of Profits absorbed by Interest

What can you conclude about the impact of primary gearing on the vulnerability of a

company to rises in interest rates?