Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ROTECTED VIEW Be careful--files from the Internet can contain viruses. Unless you need to coll, XYZ Limited has the following balance sheet as on 31

image text in transcribed

ROTECTED VIEW Be careful--files from the Internet can contain viruses. Unless you need to coll, XYZ Limited has the following balance sheet as on 31 December 2014: Fixed Assets Current assets less current liabilities 3,500,000 500,000 Share capital Reserves Long term 10% debt 4,000,000 500,000 1,600,000 1.900,000 4,000,000 The company's strategic planners have formulated the following policies 1. By the end of the year ended 31 December 2015, gearing will not exceed 100% i.e. long term debt will not exceed the total of share capital and reserves. 2. The company will pay 50% of its profits as dividend to share holders. The following estimates have been made. 1. Each Rs.10,000/- of assets generated profits of Rs.2.000 per annum before interest. 2. The current market cost of debt capital is 15% per annum. Required The company would like to invest further Rs.500,000 but does not intend to make a share issue to raise the finance. Advise its management as whether it should borrow the money and still achieve its strategic targets by the end of year 2015? (Ignore tax rate and asset depreciation) End of document ROTECTED VIEW Be careful--files from the Internet can contain viruses. Unless you need to coll, XYZ Limited has the following balance sheet as on 31 December 2014: Fixed Assets Current assets less current liabilities 3,500,000 500,000 Share capital Reserves Long term 10% debt 4,000,000 500,000 1,600,000 1.900,000 4,000,000 The company's strategic planners have formulated the following policies 1. By the end of the year ended 31 December 2015, gearing will not exceed 100% i.e. long term debt will not exceed the total of share capital and reserves. 2. The company will pay 50% of its profits as dividend to share holders. The following estimates have been made. 1. Each Rs.10,000/- of assets generated profits of Rs.2.000 per annum before interest. 2. The current market cost of debt capital is 15% per annum. Required The company would like to invest further Rs.500,000 but does not intend to make a share issue to raise the finance. Advise its management as whether it should borrow the money and still achieve its strategic targets by the end of year 2015? (Ignore tax rate and asset depreciation) End of document

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

Step: 3

blur-text-image

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

Finance Introduction To Institutions Investments And Management

Authors: Ronald W. Melicher, Edgar A. Norton

11th Edition

0470004460, 978-0470004463

More Books

Students also viewed these Finance questions

Question

explain why both internal and external recovery are important;

Answered: 1 week ago